Here's what happens to the economy when Treasury yields soar like they are now — SkimNews
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- Treasury yields jumped Wednesday — the 10-year note hit 5.125%, a level not seen since before the global financial crisis, while the 2-year climbed past 4.9% — driven by hotter inflation data, a weak 5-year auction, hyperscaler debt competition, and rising expectations for an October Fed hike.
- The Federal Reserve hiked rates last week, pushing the prime rate to 7%, with traders now pricing in another move in October that would further raise borrowing costs across credit cards, auto loans, and home equity lines.
- 30-year mortgage rates climbed to 7.26%, up more than a quarter percentage point in just two weeks and nearly a full point over the past year, according to Mortgage News Daily.
- Treasury Secretary Scott Bessent's intensified buyback efforts on longer-dated debt have so far failed to slow the yield surge, with rates moving higher despite the liquidity push.
- Consumers face a lopsided deal — savings accounts pay just 0.37% and have been declining since the Fed's late-2025 cuts, while mortgages, credit cards, and personal loans all march higher; households carry nearly $19 trillion in total debt and drive about 70% of economic activity.
- Dan North, senior economist at Allianz Trade North America, warned that smaller and medium enterprises will suffer most from reduced credit availability, even as the Atlanta Fed tracks Q3 GDP growth at a robust 5.1%.
Why it matters: Consumers holding $19 trillion in debt get squeezed by 7.26% mortgages and rising credit costs while savings accounts pay just 0.37% — a spread that does little to offset the pain. Smaller and medium enterprises face the tightest credit availability, threatening to derail the Atlanta Fed's projected 5.1% Q3 GDP growth from a consumer-driven economy that is highly sensitive to borrowing costs.
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