What to watch

Bond yields tick up, giving investors pause

Tick by tick, yields on longterm U.S. government bonds are heading higher and back near levels seen late last year.

On Monday, the yield on the 10-year Treasury note ticked up as high as 2.28%, up from around 2% in late April. It resumes an upward move that began earlier this month amid fears of a Federal Reserve rate hike, and a sharp rise in rock-bottom government bond yields in Germany at a time there were early signs of economic improvement in the eurozone and a resulting drop in global deflation fears.

Higher yields cause all sorts of headaches. When the yield on the 10-year note goes up, it means borrowers have to pay more for money they borrow on things like mortgages and student loans. A quarter of a percentage point rise won’t break the bank, but it does mean you’ll have to cough up an additional $15 a month for each $100,000 in mortgage debt. But if rates jump further, the financial bite could become more painful.

A sharp rise in yields also tends to spook stock investors. Not only do rising bond yields make stocks, especially ones purchased mainly for their dividend yields, appear less attractive, but higher borrowing costs at some point could cause economic activity to slow, and crimp corporate earnings.

For now, the yield on the 10year note is still well below where it has been historically, so the pain will be felt less. Still, Monday’s yield spike marks the highest level since Christmas Eve, with the last close above 2.28% on Dec. 5.