The 10-year U.S. Treasury note recently hit rock bottom, historically, falling to 0.38 percent on Monday, March 8, in heavy trading. It has since bounced back somewhat, rising to 1.038 percent on March 17, as talk of a $1 trillion federal government fiscal stimulus package percolated throughout the money markets.
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The 0.38 percent figure represents a historic low for the 10-year Treasury, as investors nervously fled into safe-haven Treasuries as a result of a cratering stock market due to the burgeoning coronavirus crisis.
Why is the 10-Year Treasury yield important?
The 10-year Treasury plays a unique role in both the U.S. economy and the financial markets, money experts said.
“The ten-year treasury is so important because it is considered the 'risk-free' rate, meaning that it's interest is guaranteed by the federal government,” said Matthew Murawski, a financial planner at Goodstein Wealth Management, in Encino, California. “The reason it's considered risk free is because it's backed by the federal government’s ability to tax the American people to fund its debts.”
For economists, creditors and Main Street Americans alike, the 10-year Treasury plays a huge role in U.S. and global commerce.
“They’re all directly affected by 10-year yields through mortgages, student loans, and credit cards,” said Dennis Shirshikov, a financial analyst at FitSmallBusiness.com, a financial analysis and content firm located in New York City. “The lower cost of borrowing will reduce payments, slow interest accumulation, and may lead to significant numbers of home refinancing deals, among other consumer financial activity.”
How can you benefit from the record low 10-Year Treasury yield?
Low Treasury yields offer a glimmer of sunlight in another wise grim global financial outlook – and these popular finance mainstays should be at the top of anyone’s opportunity list:
Lower mortgage costs. Any American buying a home or refinancing an existing mortgage can clean up on bottom-of-the-barrel Treasury yields.
“The 30-year, fixed-rate mortgage closely follows the 10-year Treasury bond,” said First American Deputy Chief Economist Odeta Kushi, deputy chief economist at First American, in Washington, D.C.
The U.S. is already in a historically low mortgage-rate environment, yet recent trends are definitely in play, Kushi noted.
“For instance, increased uncertainty and a global 'flight to safety,' as well as the Federal Reserve’s recent announcement that it would buy $700 billion in Treasury Securities and mortgage-backed securities, can work to a borrower’s advantage,” she said. “This increases the likelihood of additional decreases in mortgage rates.”
Higher capital gains. Owners of U.S. Treasuries have benefited from substantial capital gains (i.e. higher values) due to bond coupons well above current financial market yields, said Chester Spatt, professor of finance at Carnegie Mellon University's Tepper School of Business. “Consumers can take advantage of an inverse relationship between rates and values, as lower market rates imply higher market values.”
Better refinancing deals. Consumers may also be able to refinance to a lower loan rate on multiple financial staples.
“People should check and recheck all of their household loan obligations to see if lenders are reducing rates on mortgages, autos, home equity loans, among other loans,” said Melody A. Juge, Founder of North Carolina-based Life Income Management.
The best deals come with a good credit rating, Juge added.
A word on credit cards and low yields
Low Treasury does not usually apply to credit cards, Juge said.
“The banks have their own formula and at times like this they don’t reduce their interest rate charges,” she noted. “That’s due to lower purchasing by the consumer, higher bankruptcies, and higher levels of missing payments."
How does the 10-Year yield impact student loans?
With lower Treasury yields, there’s good news for struggling student loan borrowers.
“The interest rates on new federal and private student loans will likely reach historic lows,” said Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com.
While there is an opportunity, student loan borrowers should be patient, “as it will take one-to-three months for the interest rates on private student loans to fully reflect the interest rate cuts, depending on loan benchmark index rates,” Kantrowitz said.
“Interest rates on new federal student loans first disbursed on or after July 1, 2020, will be at a new record low, less than 2.0 percent,” he noted. “The previous record was 2.875 percent in 2005.”
That said, student loan borrowers can’t refinance a federal loan into a new federal loan to take advantage of the new lower interest rates.
“Borrowers can, however, refinance federal student loans into private student loans,” Kantrowitz added. “Borrowers can also refinance private student loans into new private student loans."