Where the yield ripples
Mortgages, companies, stocks, the government, banks, the dollar and savers, and why the same rise can be good or bad.
Monthly averages, Apr 1971 – Sep 2026: the 30-year mortgage rate (Freddie Mac, MORTGAGE30US) and the 10-year (DGS10) · today, 7.28% and 5.29% · FREDThe mortgage rate and the 10-year since 1971 · FRED
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Builds on note 1.4, What pushes the yield. Every term is defined where it first appears, and the words this note defines are collected at the end.
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01 where it ripples
Where it ripples.
Every long-term price in the economy is quoted against it, and every move has someone on each side.
FIG 1 asks one question: if the 10-year rose one point tomorrow, and nothing else changed, what would each thing be worth? Real markets never hold everything else fixed (section 02), but the test shows who is exposed.
What does a bar show?
You own something that pays you money in the future. Its value today is what a buyer would pay you for it right now. If rates rise one point, new investments pay more than yours, so a buyer pays less for yours. The bar is that drop, in percent.
Why are some bars longer?
It depends on how long you are stuck at the old rate. $1,000 in each, the day after a one-point move:
| you own | stuck at the old rate for | rates up 1 point: the bar | rates down 1 point |
|---|---|---|---|
| a 3-month bill | 3 months | $998 (−0.2%) | $1,002 |
| a 2-year note | 2 years | $982 (−1.8%) | $1,019 |
| a 10-year note | 10 years | $927 (−7.3%) | $1,080 |
| a 30-year bond | 30 years | $871 (−12.9%) | $1,160 |
A slightly worse deal for three months barely matters; for thirty years it matters a lot.
And the last bar?
It is not something you own: it is a home buyer’s budget. The same monthly payment buys a smaller loan at a higher rate:
| mortgage rate | $2,737 a month buys a loan of |
|---|---|
| 7.28%, today | $400,000 |
| 8.28%, one point higher | $363,278 (−9.2%) |
The message: when rates rise, everything that pays you later is worth less today, and the later the money, the bigger the drop. Short-term savers barely notice. Holders of long bonds, and anyone borrowing for a home, feel it most. Stocks behave like very long bonds (Stocks, below).
And if rates fall?
Everything runs in reverse: the last column above, and the button under the chart. The gains come out a little bigger than the losses.
Why bigger: a price is each future payment divided by (1 + rate) once per year of waiting. Dividing by a smaller number lifts the value more than dividing by a bigger number cuts it, and payments decades away feel it most.
get_formula.Mortgages and housing
A mortgage is a loan to buy a home, repaid in fixed monthly payments over up to 30 years. Lenders set its rate at the 10-year plus a spread, so mortgage rates follow the 10-year.
What happens when the 10-year rises?
Monthly payments rise, so the same budget buys a smaller loan. Owners who locked in a low rate years ago would lose it by moving, so many stay put, and fewer homes come up for sale. Fewer buyers and fewer sellers: sales slow, and builders build less.
The impact: homes cost more to finance, and fewer change hands. Cash buyers and savers are untouched.
Example. A $400,000 loan, at the rate in Freddie Mac’s weekly survey of lenders (a government-backed mortgage company); on 1 October it sat 1.99 points above the 10-year:15
| a year ago | now | |
|---|---|---|
| 30-year mortgage rate | 6.34% | 7.28%, the highest since November 2023 |
| monthly payment | $2,486 | $2,737: $251 more |
gain: savers, cash buyers, lenders on new loanspay: new buyers, people who must move, builders
Company borrowing
Companies borrow by selling their own bonds (corporate bonds) or taking bank loans, at a Treasury yield plus a spread for the risk they don’t repay. Many also hold cash, which earns interest.
What happens when the 10-year rises?
New loans cost more, and old loans cost more when they come due and are refinanced: replaced with a new loan at today’s rates. Meanwhile cash earns more. So it depends on whether a company owes more than it holds. Borrowers postpone projects that only made sense at low rates: the brake in note 1.1’s FIG 1.
The impact: borrowers pay more and invest less; firms with more cash than debt earn more.
Example. Two made-up firms, once their debt and cash have rolled over at rates one point higher:
| a borrower | a cash-rich firm | |
|---|---|---|
| owes | $100 million | nothing |
| holds in cash | nothing | $100 million |
| each year after | pays $1 million more interest | earns $1 million more interest |
A real one: Alphabet has $155 billion earning interest, so each point adds about $1.6 billion a year as its holdings roll over.18
gain: firms with more cash than debtpay: borrowers refinancing, highly indebted firms
Stocks
A share is a slice of a company. It pays you a share of the company’s profits, year after year, with no end date. So it is priced like a very long bond: all its future profits, turned into today’s dollars (note 1.1).
How does the 10-year reach share prices?
Four ways. The first two change what buyers will pay for the same profits; the last two change the profits.
| when the 10-year rises | what happens | impact on shares | how fast |
|---|---|---|---|
| 1. buyers ask a higher return | buyers want what a safe 10-year pays plus extra for risk, so their bar rises with it; future profits are worth less today | prices fall, most for companies whose profits lie far ahead | the same day |
| 2. bonds compete harder | safe bonds pay more, so some money leaves shares for bonds | prices fall, most for shares that earn little today | the same day |
| 3. borrowing costs more | loans cost more as they roll over; cash earns more | profits fall for heavy borrowers, rise for firms with cash | over years |
| 4. the economy slows | costlier mortgages and loans mean less spending and investment | sales and profits grow more slowly | months to a year |
So do rising yields always push shares down?
No. Ways 1 and 2 always push down; ways 3 and 4 depend on why yields rose. It is a race between rates and growth. If yields rose because the economy is booming, profits can grow fast enough to win, and shares rise anyway, as in 1999. If they rose because of inflation or risk, nothing lifts profits, and shares fall, as in 2022 (section 02).
The impact, in one line: a higher 10-year is bad for shares, unless strong growth is behind it. A lower 10-year works the other way: good for shares, unless a recession is behind it.
Who sets the return buyers ask?
No one; buyers do, through the price they pay. It is what a safe 10-year note pays, because a buyer could have that instead, plus extra for the risk that profits disappoint: the equity risk premium. Views of that extra differ; this note assumes 4 points. Dividing future profits by this return is called discounting, so it is also the discount rate. (Not the Fed’s “discount rate”, the rate it charges banks: same name, different thing.)
Example 1: one Costco share. Costco earns $20.00 of after-tax operating profit a share a year: what the business earns from its own work, after costs and before interest, less 21% tax, from its 10-Q filings (the quarterly reports a US-listed company files with the SEC, the stock-market regulator).1819 Its share costs $910.34. How expensive is that? Count how many years of profit it takes to earn the price back:
| if Costco’s profit a share… | years of profit to earn back $910.34 |
|---|---|
| stays at $20.00 forever | about 46 |
| grows about 16% a year for ten years, then 3% | about 15 |
Nobody pays 46 years of profit for a business that stays flat. Buyers pay it because they expect growth: the second row is the growth the price assumes, the growth that makes today’s price fair. So most of what a buyer pays for is profit far in the future. Hold that growth, and move only the 10-year:
| one Costco share | 10-year at 5.29% | one point higher | one point lower |
|---|---|---|---|
| return buyers ask (5.29% + 4) | 9.29% | 10.29% | 8.29% |
| next year’s profit, in today’s dollars | $21.23 | $21.04 | $21.43 |
| all profit after year 10, in today’s dollars | $595.97 | $469.45 | $776.85 |
| share price | $910.34 | $768.93 (−15.5%) | $1,107.30 (+21.6%) |
Nothing about Costco changed: same stores, same profit. Only the return buyers ask changed, and that alone moved the price −15.5% one way or +21.6% the other.
Why do the far years move the most?
Each year’s profit is divided by (1 + the return asked) once for every year you wait for it. Next year’s profit is divided once, so a one-point change barely touches it: $21.23 becomes $21.04. Profit twenty years away is divided twenty times, so the same one point adds up twenty times over. That is why all the profit after year 10 drops from $595.97 to $469.45.
And far-off profit is most of what Costco’s buyers pay for: 68% of its value is profit more than ten years away. A 30-year bond has only 58% of its value that far out. So when rates move, Costco’s price swings even more than a 30-year bond’s.
Who gains when rates fall?
Whoever owns the share on the day rates fall: their $910.34 share is suddenly worth $1,107.30. Someone who buys after the jump pays $1,107.30 for the same $20.00 of profit, so earns less on each dollar from then on, just like the buyer of your friend’s 6% note in note 1.1.
Example 2: competing with bonds. $100 in a 10-year note earns $5.29 a year, fixed. $100 of Costco shares earns $2.20 of profit this year: its profit yield, profit per share ÷ price. Buyers accept less now for growth later. When the note pays more, that trade looks worse.
Example 3: the race. To cancel a one-point rise, the growth Costco’s price assumes would have to go from 16.0% to 18.4% a year for ten years: +2.4 points, every year.
Two limits. The model treats all profit as cash an owner could take, with nothing reinvested, and the growth it finds moves a lot with the 4-point premium: read it as what a price implies, not a forecast. And the share price moves a little less than the business, because Costco’s net cash (cash minus debt) doesn’t reprice. Formulas: get_formula.
gain: (when growth drives it) firms whose profits rise with it; firms with more cash than debtpay: (when rates alone rise) companies whose value lies far ahead; heavy borrowers
The government’s interest bill
The US government owes $31.45 trillion to investors. Like any borrower it pays interest. Its debt is bonds that come due over time and are replaced with new bonds at the rates of the day.8
What happens when the 10-year rises?
Not much at first: bonds already sold keep their old rates. But each time old debt comes due, it is replaced at the higher rate (rolled over), so the interest bill climbs year after year. Interest is spending, so the deficit grows, and the government must sell even more bonds: the debt loop (note 1.4).
The impact: a higher 10-year raises the government’s interest bill, slowly but surely. Every extra dollar of interest is a dollar not spent on anything else, or a dollar borrowed.
Example. What the bill has done, and what one more point would do:8
| interest paid, less interest earned, fiscal 2022 (the budget year to September) | $476 billion |
| the same, fiscal 2025, after rates rose and the debt grew | $970 billion |
| what one more point would add, once all the debt has rolled over | about $315 billion a year, 32% of the fiscal 2025 bill |
gain: holders of new Treasuriespay: taxpayers, and every other line of the budget
Banks and bond holders
Banks, insurers and pension funds own lots of Treasuries. When yields rise, those bonds’ market value, what they would fetch if sold today, falls (note 1.1).
Is that a real loss?
Only for a holder who has to sell. A bond held to the end still pays every promised dollar; the holder just earns less than new bonds would pay. A holder forced to sell takes the whole loss at once. For a bank that can be fatal: if the loss is bigger than its capital, the owners’ own money that absorbs losses, it fails.
The impact: rising yields make every bond holder poorer on paper, and put whoever is forced to sell in danger. Not every holder loses: a pension fund owes money decades ahead, and money set aside today now earns more on the way, so each future promise costs less to fund.
Example. Silicon Valley Bank, March 2023. It had bought long bonds when yields were low. Yields rose, and the bonds were worth less. Alarmed depositors pulled their money out; to pay them, the bank sold the bonds at a loss, and the loss sank it.16
gain: pension funds and insurers with long promises to keeppay: holders who must sell, banks with long bonds and flighty deposits
The dollar and the world
To buy a US bond, an investor abroad first needs dollars.
What happens when the 10-year rises?
US bonds pay more, so more investors abroad want them, so they buy dollars, which pushes the dollar up against other currencies. A stronger dollar makes imports and travel abroad cheaper for Americans and US goods costlier abroad, and countries and companies that borrowed in dollars need more of their own currency to repay. Long yields in other countries also tend to follow the 10-year.
The impact: the 10-year sets the price of money beyond the US. When it rises, borrowing gets harder around the world, and the dollar tends to strengthen.
Example. This year the tendency didn’t show. The 10-year rose 1.13 points, yet the Fed’s broad dollar index (the dollar against a basket of the main US trading partners’ currencies) barely moved: 120.1 on 30 September 2025, 120.3 on 25 September 2026.1 A tendency, not a rule.
gain: (if the dollar rises) US importers and travellerspay: dollar borrowers abroad, US exporters
Savers, cash, and the bar for everything else
Savers lend money to the safest borrowers: banks, money-market funds, the government.
What happens when the 10-year rises?
Safe savings pay more. That raises the bar for everything riskier: a stock, a startup or a new factory must promise more than a safe bond to be worth the money. That is “competition for capital”: capital is money available to invest.
The impact: savers gain; anything that needed cheap money to make sense loses.
Example. What safe choices pay now:
| safe choice | pays | on $10,000 |
|---|---|---|
| a 3-month Treasury bill | 4.20% a year | about $420 a year |
| a 10-year TIPS | 2.93% a year above inflation | about $293 a year, plus inflation |
gain: savers, retirees living on interest, anyone holding cashpay: projects and assets that need cheap money to make sense
02 good or bad depends on why
Good or bad depends on why.
The same one-point rise can be a sign of strength or a sign of strain.
A rise in the 10-year can mean two very different things. Note 1.3 split the yield into parts; which part moved tells you which.
What are the two kinds of rise?
| the growth kind | the strain kind | |
|---|---|---|
| what moved | the real yield and the expected path: lenders expect a strong economy and a firm Fed | the breakeven or the term premium: lenders fear inflation, or lending long feels riskier |
| what it says | the economy is doing well | something is going wrong |
| profits | often rising with the economy | squeezed by costs or slower spending |
| stocks | can rise anyway: growth wins the race (section 01) | tend to fall |
| bonds | fall, because yields rose | fall too |
The impact: the same rise in the 10-year can come with rising stocks or falling stocks. Which part of the yield moved tells you which.
Why does it matter to someone who owns both stocks and bonds?
Many investors hold bonds as a cushion. A portfolio is everything an investor holds; a hedge is something that tends to gain when the rest loses. In the growth kind, bonds are a good hedge: bad news for growth pushes stocks down and yields down, so bond prices rise and soften the loss. In the strain kind, the hedge fails: inflation news pushes yields up and stocks down at the same time, so stocks and bonds fall together, just when the cushion is needed.
Example 1: three years with a rising 10-year. (The S&P 500 is an index of five hundred large US companies.)17
| when | the 10-year | which kind, and why | stocks |
|---|---|---|---|
| Oct 1998 – Jan 2000 | 4.16% → 6.79% | growth: an investment boom and a firm Fed | Nasdaq +173% |
| 2022 | 1.52% → 3.88% | strain: inflation at 9.1%, the fastest hikes since the 1980s | S&P 500 −19.4%, Nasdaq −33.1% |
| the year to 30 Sep 2026 | 4.16% → 5.29% | both: the real yield rose (growth) and the term premium rose (strain); expected inflation stayed flat | S&P 500 +14.4%, Nasdaq +18.5% |
The 10-year rose all three times. Stocks boomed once, fell once, and rose this year, when both kinds were at work (example 3).
How can you tell which kind is leading?
Watch whether stocks and yields move together. FIG 2 scores it over each past year as a correlation: from minus one (always opposite) to plus one (always together).
| FIG 2’s line | what it means | bonds as a hedge |
|---|---|---|
| above zero | stocks and yields rise and fall together: growth news is moving both | work: bond prices move opposite to stocks |
| below zero | when yields rise, stocks fall: inflation and rate news lead | fail: bonds and stocks fall together |
Example 2: fifty years of FIG 2. From 1972 to 1999 the line sat mostly below zero, when inflation was what markets feared most. From 2000 to 2021 it sat above zero in 93% of months, with inflation low and steady. It dropped below in 2022 as inflation returned. Researchers tie these eras to whether inflation or growth news dominates, and to how central banks respond.17
Example 3: this year. It had both kinds. Through March 2026 the line was above zero, reaching 0.48 in February: yields rising with stocks, the growth kind. Since the oil shock it has been below, at −0.17 in September. Which character leads from here is what note 1.6’s dashboard is for.
03 the words
The words in this note.
Every term this note defines, in the order it appears.
| word | what it means |
|---|---|
| corporate bond | A bond sold by a company. |
| refinance | Replace a loan that comes due with a new one at today’s rates. |
| operating profit | What a business earns from its own work, after its costs and before interest. |
| discount rate (for a share) | The return buyers ask of a share: what a safe 10-year pays plus the equity risk premium. Future profits are divided by it to get today’s price. Not the Fed’s discount rate. |
| equity risk premium | The extra return investors want for owning shares rather than safe bonds. |
| growth the price assumes | The yearly profit growth at which a share’s discounted profits add up to its price. |
| profit yield | Profit per share divided by the price: what $100 of a share earns this year, before growth. |
| net cash | Cash minus debt. |
| 10-Q | The quarterly report a US-listed company files with the SEC, the stock-market regulator. |
| market value | What something would fetch if sold today. |
| rolled over | Repaid with new borrowing, at the rates of the day. |
| dollar index | The dollar’s value against a basket of the currencies of the main US trading partners. |
| capital | Money available to invest. A bank’s capital is its owners’ own money, the cushion that absorbs its losses. |
| correlation | A score from minus one to plus one for whether two things move together. |
| portfolio | Everything an investor holds. |
| hedge | Something that tends to gain when your other holdings lose. |
Every term in the notebook, with the note that explains it, is in the notebook’s glossary.
sources read 2026-10-01
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Sources · 8 references
Every series was downloaded from FRED on 1 October 2026 (unadjusted CPI on 2 October), and the filings from EDGAR the same day; both are kept as a snapshot with the post. Every number on the page is computed from that snapshot or quoted from the sources below. Each source is marked peer-reviewed or not. Nothing here is advice: the post explains; it does not recommend.
- Board of Governors of the Federal Reserve System (2026). Selected Interest Rates (H.15): market yields on US Treasury securities at constant maturity, 1-month to 30-year (DGS1MO … DGS30), 10-year TIPS (DFII10), the federal funds target range (DFEDTARL, DFEDTARU; DFEDTAR before 2008) and the effective rate (FEDFUNDS); the broad dollar index (DTWEXBGS, H.10). Retrieved from FRED, Federal Reserve Bank of St. Louis, 1 October 2026. Data, not peer-reviewed. fred.stlouisfed.org/series/DGS10
- Nasdaq OMX Group and S&P Dow Jones Indices (2026). Nasdaq Composite (NASDAQCOM) and S&P 500 (SP500), daily closes. Retrieved from FRED, 1 October 2026. Data, not peer-reviewed. fred.stlouisfed.org/series/NASDAQCOM
- US Treasury, Office of Management and Budget and Bureau of Economic Analysis (2026). Federal debt held by the public at the end of each quarter (FYGFDPUN), net interest outlays by fiscal year (FYOINT, OMB), federal interest payments in the national accounts at an annual rate (A091RC1Q027SBEA, BEA; a broader measure, not comparable with FYOINT) and gross domestic product (GDP). Retrieved from FRED, 1 October 2026. Data, not peer-reviewed. fred.stlouisfed.org/series/FYGFDPUN
- Freddie Mac (2026). Primary Mortgage Market Survey: 30-year fixed rate mortgage average in the United States (MORTGAGE30US), weekly. Retrieved from FRED, 1 October 2026. Data, not peer-reviewed. fred.stlouisfed.org/series/MORTGAGE30US
- Board of Governors of the Federal Reserve System (2023). Review of the Federal Reserve’s supervision and regulation of Silicon Valley Bank, 28 April 2023. Not peer-reviewed. federalreserve.gov/publications/files/svb-review-20230428.pdf
- Campbell, J.Y., Pflueger, C. and Viceira, L.M. (2020). Macroeconomic drivers of bond and equity risks. Journal of Political Economy 128(8), 3148–3185. Why the stock–bond correlation changes sign between regimes, and the role of monetary policy in it. Peer-reviewed. doi.org/10.1086/707766
- Costco Wholesale (10-Q for the quarter to 10 May 2026, accession 0000909832-26-000051) and Alphabet (10-Q to 30 June 2026, 0001652044-26-000071); earlier quarters from the filings before them. Read through SEC EDGAR’s XBRL company facts, 1 October 2026: operating income, cash, equivalents and marketable securities, debt, interest income and expense, shares outstanding. Filings, not peer-reviewed. sec.gov/edgar
- Costco’s closing price on 30 September 2026: $910.34. Yahoo Finance daily data, read 1 October 2026. Market data, not peer-reviewed; to be cross-checked in Koyfin before publication.
To verify before publication: Costco’s 30 September close against Koyfin. Checked against their own pages on 2 October 2026: the FOMC statement of 16 September 2026, the BLS releases for August 2026, the Treasury’s statements of 2 August and 1 November 2023, the Bank of England’s case study, the Federal Reserve History essay, and every series against a fresh recomputation. Not sourced, and so not stated as numbers: the market-implied odds of a hike, and the average maturity of the government’s debt.
documentation
- FRED: the 10-year Treasury yield (DGS10): The series the post is about, daily since 1962, from the Fed's H.15 release.
- TreasuryDirect: marketable securities: What bills, notes and bonds are, and how long each lends for.
- the Federal Open Market Committee: Where the Fed sets the federal funds rate: its meetings, statements and projections.
- TreasuryDirect: TIPS: Treasury Inflation-Protected Securities, whose yield is a real yield.
- the Kim–Wright term structure model: The Fed's page for the model and its published term premium estimates.