President Trump returned to office promising lower costs across the economy, but an important interest rate that his administration cites as a barometer of its success recently hit its highest level of Mr. Trump’s second term.
The yield on the 10-year Treasury bond, considered one of the most important interest rates in the world, jumped this week to 4.7 percent, up from less than 4 percent before the start of the war in Iran in late February. It was 4.6 percent on the day Mr. Trump returned to the White House in January 2025.
The yield underpins borrowing costs across debt markets, from corporate bonds to mortgage loans, and its rise complicates Mr. Trump’s plans to keep costs affordable for companies and households across the United States.
The impact is apparent in the housing market. Rising yields have driven up mortgage rates in recent weeks, dampening hopes that moribund home sales would rebound this year. The average 30-year fixed-rate mortgage, the most common home loan in the United States, is now 6.58 percent, Freddie Mac said Thursday. Mortgage rates had fallen below 6 percent in the week before the first U.S.-Israeli strikes on Iran in late February.
“This latest leg up in rates is going to push sales down unless it’s quickly reversed,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics. “And it comes at a time when households are confronting other increased costs for energy and food due to the effects of the war.”
While some of the rising yields can be attributed to higher inflation expectations amid soaring oil prices, analysts said that longer-dated interest rates, like the yield on the 10-year Treasury note, had been caught in a swirl of higher growth expectations stemming from the build-out of artificial intelligence infrastructure. The higher growth, if left unchecked by higher rates, could cause the economy to overheat and ramp up inflation. Another factor driving up the 10-year yield is investors’ worries about unsustainable fiscal spending by governments around the world.
“The Iran war isn’t helping, but it’s not obvious that the 10-year is being driven by inflation risk,” said Jonathan Hill, an inflation strategist at Barclays.
In Britain, 10-year gilts — the equivalent term to Treasuries for government debt — have risen 0.9 percentage points to over 5 percent since the war started, alongside concerns over the fiscal plans of the new prime minister, Andy Burnham. In Japan, 30-year government bonds have risen 0.7 percentage points, to 2.8 percent, over the same period, as the government has rolled out hefty spending plans. Concerns over high government spending also linger in the United States, as the government seeks to increase its military budget for the war with Iran.
As governments look to borrow more, investors are demanding a higher return to lend, and that higher return is reflected in higher interest rates throughout the economy, analysts said. The U.S. government has nearly $40 trillion in debt outstanding, more than double the amount 10 years ago.
“All bond yields are rising, and it is for some of the same reasons,” said Subadra Rajappa, an interest rate strategist at Société Générale. “It is about domestic debt and deficits. It’s happening globally.”
Analysts also pointed to the huge amounts being lent to big technology companies at the forefront of the A.I. build-out, which is forcing other companies that want to borrow money to attract investors by increasing the amount they are willing to pay in interest.
Scott Bessent, the Treasury secretary, has previously pointed to the 10-year bond as a “barometer” of his success in improving affordability.
“Lower Treasury borrowing costs mean lower corporate borrowing costs, lower mortgage rates and lower car payments — which all translates to greater affordability for all Americans,” he said in a speech in November.
Conversely, higher treasury yields mean higher borrowing costs for companies and consumers, hurting affordability.
The yield had fallen below 4 percent earlier this year, touching its lowest point of Mr. Trump’s second term on Feb. 27, the day before the United States and Israel attacked Iran. Since then, the 10-year yield has risen roughly 0.8 percentage points.
Although analysts said that inflation worries had been largely contained, there remains pressure on Kevin Warsh, the Federal Reserve chairman, to show his commitment to reining in the pace of price rises. Traders warn that inaction from the central bank risks extending those inflation worries over a longer period, potentially pushing yields on longer-dated Treasury notes even higher.
“The reality is we are coming up on five and a half years of above-target inflation,” said Mr. Hill of Barclays, “and the market is already saying we should anticipate the likelihood of that for additional years, not just months, to come.”
