New bond investors and high-income earners stand to benefit from rising yields

Money market funds and high-yield savings accounts also offer upside

US 10-year Treasury yield at 4.761% on Thursday; 2-year at 4.33%

Rate-cut hopes ease short- and long-term yields, but 30-year remains above 5%

Rising long-term yields weigh on mortgages, corporate bonds; governments, households and businesses all feel the pain

US dollar bills. [Getty Images]
US dollar bills. [Getty Images]

Government bond yields in the United States and other major economies have surged to their highest levels in years, prompting analysts to declare the arrival of a sustained high-interest-rate era. The rise in yields is expected to increase borrowing costs for governments, push up financing expenses for businesses, and add to household burdens through higher mortgage and auto loan payments. New bond investors, however, could emerge as relative beneficiaries, analysts say, as elevated yields offer greater income to offset potential price declines.

The yield on the 10-year US Treasury note — the benchmark for global bond markets — closed at 4.761% on Thursday, down 3 basis points (one basis point equals 0.01 percentage point) from the previous session. That marked a slight easing from Wednesday, when the yield briefly climbed to 4.821% during trading, its highest level in roughly two years and 10 months since November 2023.

The 2-year Treasury yield, which is more sensitive to monetary policy expectations, also pulled back after briefly topping 4.4% on Friday, closing at 4.33%.

The 30-year Treasury yield — which reflects long-term economic outlooks and inflation expectations and serves as a benchmark for pension and long-term insurance liabilities — closed the regular session down more than 3 basis points at 5.243% on Thursday before edging back up 1 basis point to 5.252%, keeping it in the 5.2% range. The 30-year yield had surged to between 5.31% and 5.33% on Aug. 17 and 18, hitting its highest level in 19 years.

Long-term government bond yields serve as a reference rate that influences borrowing costs for mortgages and corporate bonds. For households, higher rates mean greater expenses on home purchases and loan repayments, leaving less room for consumer spending. Businesses face added pressure on investment and expansion plans. Governments already carrying large debt loads must refinance maturing bonds at higher rates, meaning interest burdens will grow over time.

"When you look at how much of a paycheck goes toward car payments, mortgages and student loans, lower-income households will feel the strain far more than wealthier ones," said Larry Holzenthaler, senior portfolio manager at Catalyst Funds.

While the burden of rising yields falls disproportionately on lower-income households, high-income earners stand to benefit from higher deposit rates and greater interest income, making them relative winners from rising rates. They are also better positioned to absorb larger monthly payments.

ABC News noted that "the shock could build gradually as fixed-rate loans mature and are refinanced at higher rates," adding that a pullback in lower-income consumer spending could ripple through the broader economy.

Investors buying new bonds can also benefit from rising yields, as the higher interest income can cushion losses even if bond prices fall further. Deutsche Bank estimated that even if the 10-year US Treasury yield rises to around 5.5% over the next year, capital losses from falling bond prices would not exceed the interest income earned.

Holzenthaler described the dynamic as a "K-shaped consumer phenomenon."

Rates on relatively safe financial products such as money market funds (MMFs) and high-yield savings accounts can also rise alongside government bond yields. This means that while higher rates increase the burden on borrowers, consumers who park their money in deposits or similarly safe instruments can expect greater interest returns. MMFs invest in short-term instruments such as government and financial institution paper, certificates of deposit and commercial paper.

ABC News said the situation could produce "a split effect — adding pressure on heavily indebted households while offering higher interest returns to consumers holding cash or deposits."


yckim6452@heraldcorp.com