Rapid run-up in Treasury yields could drive housing, auto loan costs higher

The rapid run-up in Treasury yields could hit American consumers hard, raising borrowing costs across housing and auto loans and potentially hammering the stock market.

Global bond markets have been selling off as investors fear a prolonged war with Iran could drive inflation even higher, possibly swaying the Federal Reserve to hike interest rates.

Treasury yields are the annual interest rates that investors are paid for holding government debt, and they are inversely linked to prices. As traders dump government bonds, yields move higher.

The 10-year US Treasury yield rose to 4.798% Wednesday – hitting its highest level since November 2023.

While the bond sell-off may sound like a Wall Street event, “it can quickly become a Main Street problem” said Mark White, wealth advisor at Mark White Wealth Advisors.

“Overall, higher yields reward savers but penalize borrowers – and households preparing to buy a home, finance a car or carry revolving debt are likely to feel the impact most,” he told The Post on Wednesday.

Mortgage rates, for example, are closely tied to the 10-year yield, which means an already-struggling market could find itself shutting out even more prospective buyers.

Historically low inventory around the country has pushed asking prices out of reach for many, especially younger, first-time buyers. 

Four years of elevated borrowing costs have kept the market essentially frozen, since homeowners who clinched low interest rates are reluctant to move and give up a good deal.

Mortgage rates briefly dipped below 6% in February – but they quickly rebounded after the US and Israel launched strikes on Iran. 

As of last Friday, the 30-year fixed mortgage rate was 6.66%, according to Freddie Mac.

Even a modest increase in mortgage rates can add hundreds of dollars to homeowners’ monthly payments and reduce their spending power elsewhere, White noted.

Higher rates also hurt the rental market, since developers will be discouraged from building – keeping supply insufficient to meet demand.

“This will impact affordability for many hoped-for homebuyers and all other borrowers. Higher yields will trickle down to the greater economy and have a negative impact,” Melissa Cohn, regional vice president of William Raveis Mortgage, told The Post.

A slow housing market typically means Americans will buy less furniture and hire fewer people to work on new properties as they stay put, for example.

Auto loans are more closely tied to the 5-year Treasury yield, which hit 4.55% Wednesday – its highest level since January 2025.

Car shoppers have already been struggling to buy new vehicles, one of the categories hit hardest by President Trump’s tariffs and supply chain struggles during the pandemic. Vehicle insurance and maintenance costs have also been climbing.

Drivers are also feeling pain at the pump, as national average gasoline prices remain stubbornly above $4 a gallon – far above the $2.98 average prior to the Iran war.

Rising Treasury yields could also hamper the stock market, which has been going strong this year despite concerns around tariffs and the Middle East conflict.

Higher yields offer investors a safer alternative to stocks – potentially putting pressure on stock prices. 

They also influence the corporate bonds that businesses use to borrow funds, making it more difficult for companies to fund the massive AI investments that have been driving stock market gains.

“Growth stocks and highly valued companies tend to be especially sensitive,” White said. “The positive side is that savers and investors purchasing new bonds can earn significantly better income, although existing long-term bondholders may experience price declines.”

In the meantime, traders are growing increasingly concerned that the Fed could hike interest rates for the first time since 2023, which would raise short-term borrowing costs – more directly impacting the rates on credit cards and home-equity lines of credit.

Inflation has remained stubbornly above the Fed’s 2% target, most recently hitting 3.4% in July. 

During his Jackson Hole, Wyo., speech last week, Fed Chair Kevin Warsh said he does not see the central bank’s current policy as “restrictive” and that there may be “work to do” on inflation – signaling a bent toward raising rates.

The odds of a quarter-point hike at the Fed’s Sept. 16 meeting were 64% as of Wednesday, according to CME FedWatch, which tracks futures prices.