It is not just the Federal Reserve's short-term interest rate hikes that are affecting the personal finances of Americans. The recent 10-year Treasury Note yield increase of nearly 3.25% – its highest level since the spring of 2011 – will also affect borrowing costs and investment portfolios. 39; investment.

The performance of the major US government bond, whose movements are determined by investors and traders based on factors such as economic growth and inflation, affects prices between fixed rate mortgages and equities.

The recent soaring so-called "long-term bond" holds the attention of Wall Street economists and fund managers. Why? This is the last sign that the era of borrowing cost reduction, which has lasted for nearly a decade, is coming to an end with the recovery of the economy.

Many Americans will begin to experience additional financial difficulties related to rising yields at 10 years. This increase will make it more expensive to finance things such as home purchases or kitchen remodeling with mortgages and equity loans with fixed rates. An increase in this market-determined rate could also lead to market turbulence, thereby undermining the 401 (k) retirement savings accounts of millions of worker-owned stock and bondholders.

Although rumors about the 10-year US public debt yield may not attract investor attention, as would a 500-point fade in the Dow Jones industrial average, the move This key interest rate is essential because it is the borrowing rate that many other financial assets deactivated.

The 10-year note is considered a risk-free investment because the debt is backed by the US government. Thus, any increase in return is reflected in the financial system.

"The US Treasury Note is the basis for the price of any other financial asset," says Brad McMillan, chief investment officer at Commonwealth Financial Network.

The Fed's short-term interest rate hikes have a more direct impact on credit card loans, adjustable rate mortgages and equity lines of credit. Last week, the Fed raised its key rate in a range of 2% to 2.25%, continuing its efforts started in December 2015 to reduce rates to more normal levels after reducing them to zero percent at of the financial crisis of 2008. Thus, the rise of the 10-year note, which increases the rates of fixed rate mortgages, is a double blow.

Here's how the growing 10-year US Treasury yield can impact your bottom line:

More expensive fixed rate mortgages

If the 10-year Treasury yield rises, the rate of fixed rate mortgages, like the 30-year common product, also increases. This means that people looking to buy a new home or a new condo will be the most affected because the cost of financing the purchase will increase as rates go up, said Greg McBride, chief financial analyst at Bankrate.com.

"Rising mortgage rates are impacting the affordability of homebuyers," said McBride. "When shopping for a home, the amount you can afford to buy will be tied to the current level of rates and the size of the mortgage you can afford."

According to the Mortgage Bankers Association, the 30-year average fixed rate mortgage was 4.96% during the week ending September 28th. This is up from about 4% a year ago and at a striking distance of 5%, the latest level reached in February 2011.

The monthly cost of a $ 200,000 mortgage at a rate of 5% is about $ 1,074 USD. That's up from $ 955 a month ago for the same size mortgage at 4% a year ago, according to McBride.

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401 (k) potholes in portfolio

Retirement investors could also suffer as a result of increased turbulence in their equity and bond portfolios as a result of rising rates. Higher borrowing costs could bring down share prices, fearing that a more expensive debt will slow down the economy, force companies to borrow and grow their businesses, while making shares less likely attractive compared to higher yielding bonds.

"Higher bond yields will further dampen the stock market, which will divert more volatile and riskier equity investments," said Chris Rupkey, chief economist at MUFG, a Tokyo-based global bank.

The Dow, for example, has seen sharp declines in part due in part to recent spike in yields and fears that interest rates will rise even higher. Todd Sohn, analyst at Strategas Securities, explains that interest-rate-sensitive stocks, such as home builders who are negatively impacted by rising mortgage rates, and stocks whose main interest is their high dividends New York.

Yield researchers earn

Some bond investors may also suffer as bond prices they own will fall as their yields rise (prices move in the opposite direction of returns). But there is hope for investors looking for fixed income investments offering higher returns. If, for example, you are looking for income without taking a lot of risk, you will get higher returns with the new investments in 10-year treasury bills, because yields close to 3.25% are much more interesting than the 2 , 4%. at the beginning of the year. An investment of $ 10,000 at 3.25% equals an annual interest of $ 325, compared to $ 240 at an annual interest of 2.4%.

"(Bond investors) could start to see more significant returns on these positions if yields were higher," said Mike Loewengart, vice president of investment strategy at E-Trade.

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