00:00 – Intro
02:29 – Yield Basics
04:30 – The Yield Curve
05:15 – Why Are Yields Rising Now?
09:19 – Why Higher Yields Might Hurt the Economy
12:45 – Concerns Around Banks
14:30 – Other Considerations
17:08 – Closing Thoughts

There was a lot of talk last week about the rising US Treasury yields – let’s take some time to explain what exactly is going on.

This channel is for education purposes only and does not constitute financial advice – Richard is not responsible for investment actions taken by viewers. Please seek out a registered advisor if you require assistance (while Richard is a registered portfolio manager at WDS Investment Management, he does not provide advice through The Plain Bagel, which is not affiliated with his employer)….(read more)

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What Rising Treasury Yields Mean for the Economy

Treasury yields, or the interest rates on government-issued bonds, play a vital role in shaping the economy. As investors and analysts closely monitor these yields, any significant changes can have far-reaching implications. Recently, rising Treasury yields have attracted attention and sparked discussions on how they may impact the economy.

To comprehend the effects of rising Treasury yields, it is essential to understand the relationship between bond prices and interest rates. When Treasury yields rise, the prices of existing bonds decrease. This occurs because investors demand higher yields to compensate for the newly available high-yield bonds. Conversely, when Treasury yields decline, bond prices increase as investors scramble to secure a higher return on their investments.

One of the most immediate and visible consequences of rising Treasury yields is the cost of borrowing. As bond prices drop, so do the prices of mortgage-backed securities. Consequently, mortgage interest rates increase, making it more expensive for consumers to finance their home purchases. This rise in borrowing costs can dampen demand for housing, potentially slowing down the real estate market.

Moreover, rising Treasury yields can have a ripple effect on various sectors of the economy. When companies need to raise capital, they often issue corporate bonds. These bond prices are closely influenced by Treasury yields. As Treasury yields rise, corporate bond prices tend to follow suit, making these bonds less attractive to investors. As a result, companies may find it more challenging to secure financing, impacting business expansion, innovation, and job creation.

Investors, too, feel the effects of rising Treasury yields. As bond yields rise, the appeal of risk-free government bonds increases. Consequently, investors may shift their investments away from riskier assets such as stocks and towards Treasury bonds. This reallocation of investments can lead to downward pressure on stock prices, negatively impacting the stock market and potentially affecting investors’ portfolios and retirement savings.

Rising Treasury yields can also have implications for the global economy, particularly in emerging markets. As Treasury yields increase, the relative attractiveness of investing in emerging market bonds diminishes. Investors may choose to repatriate their funds to the US, seeking higher returns on Treasury securities, which can result in a sell-off of emerging market currencies and increased borrowing costs for these nations.

However, rising Treasury yields are not necessarily negative for all aspects of the economy. They can also be seen as a positive signal, reflecting confidence in the economy’s strength and future prospects. Higher yields can attract international investors looking for higher returns, further boosting capital flows into the country and stimulating economic growth.

In summary, rising Treasury yields have profound implications for the economy. They can raise borrowing costs, dampen demand in the housing market, impact corporate financing, increase investment in Treasury bonds, put downward pressure on stocks, and influence global capital flows. Nonetheless, rising yields can also demonstrate confidence in the economy and attract international investment. As such, policymakers, investors, and economists need to closely monitor Treasury yields and assess their impact on various sectors to effectively navigate the evolving economic landscape.