Long-term Treasury yields reach highest levels since 2007

Long-term Treasury yields have risen sharply in recent days, with the 30-year yield reaching 5.2 percent Tuesday. The 10-year Treasury yield also climbed to its highest level in more than a year. The increases come as investors weigh several economic pressures at once.

Oil prices have risen due to the Iran war, pushing up costs for gasoline, food, and air travel. Inflation has remained above the Federal Reserve’s 2 percent target for an extended period.

Bond market mechanics A bond functions as an IOU in which investors lend money to institutions, including the U.S. government, in exchange for interest payments. U.S. government bonds are known as Treasurys and range in duration from one month to 30 years.

When investors sell bonds, yields typically rise because fewer buyers remain in the market. Yields also move with Federal Reserve interest-rate decisions. Higher yields on new bonds make older bonds with lower yields less attractive, which can reduce their resale value.

Investors may also sell bonds if they expect the government to issue more debt, increasing supply.

Effects on borrowing and spending Higher yields influence consumer borrowing costs. On Tuesday, the average 30-year fixed mortgage rate rose to 6.75 percent, its highest level since July, according to Mortgage News Daily. Rates have climbed steadily since the Iran war began.

Rising yields can also affect stock prices. When bond returns become more attractive, investors may shift away from equities. ” Diane Swonk, chief economist at KPMG, said higher rates affect affordability while also helping reduce inflation. Kelsey Berro, a portfolio manager at J.P. Morgan Asset Management, noted that the conflict has lasted longer than expected and that concerns are compounding.