The yield on the 10-year U.S. Treasury note has climbed above 5% (as I write this) reaching levels not seen in more than two decades. Although Treasury yields may seem like a Wall Street concern, their impact extends well beyond financial markets.
Higher yields can make borrowing more expensive, put pressure on household budgets, and influence how much consumers spend at small businesses.
Ben Johnston, chief operating officer of small business financing company Kapitus, and Kevin Ford, FX and macro strategist at global payments company Convera, explain what’s driving the increase and why small business owners need to pay attention.
Why Is the 10-Year Treasury Yield Rising?
The 10-year Treasury yield represents the return investors receive on U.S. government debt with a 10-year maturity. It’s also an important benchmark for interest rates throughout the economy.
When Treasury yields rise, other borrowing costs often increase as well.
Johnston attributes part of the increase to the growing amount of debt issued by the federal government and large corporations. As borrowers compete to attract investors, they may have to offer higher yields. That can raise the cost of capital throughout the economy, including for small businesses.
Ford also points to federal borrowing and investors’ concerns about inflation and future interest rates. He says the bond market is adjusting to the combination of substantial government borrowing, continued economic activity, and expectations that interest rates may remain elevated.
The result is a financial environment in which businesses and consumers could face higher borrowing costs for longer than they anticipated.
How Do Higher Treasury Yields Affect Small Business Borrowing?
Small businesses don’t borrow directly at the 10-year Treasury yield. But rising yields can influence the rates lenders charge, particularly on longer-term financing. That matters for business owners considering equipment purchases, commercial real estate, expansion projects, or refinancing existing debt.
Johnston says the increase in Treasury yields is making capital more expensive for small businesses and consumers alike. Businesses seeking financing may find that monthly payments are higher than they expected, making some investments less attractive or more difficult to afford.
The impact depends on the type of financing. Existing fixed-rate loans generally aren’t affected immediately, while businesses seeking new loans or refinancing debt may encounter higher rates. Variable-rate borrowing can also become more expensive, depending on the benchmark used.
For small business owners, this makes it especially important to evaluate the total cost of financing and whether anticipated revenue will support the payments.
How Do Higher Yields Affect Consumer Spending?
Higher borrowing costs can also affect small businesses indirectly by reducing customers’ purchasing power. Johnston notes that mortgage rates have followed Treasury yields higher, making homes less affordable and slowing sales. Higher costs for consumer borrowing can put additional pressure on household budgets.
And those pressures come on top of already elevated prices for necessities such as food and gasoline.
For small businesses, the challenge is twofold: You’re already dealing with rising expenses while depending on customers who may have less money available for discretionary purchases.
Johnston says businesses may need to adjust their product offerings to emphasize affordability and value. That could mean introducing lower-priced options, offering smaller packages, or finding ways to help customers make purchases without significantly increasing their spending.
He also suggests that some businesses may need to reconsider which customers they’re targeting, particularly if higher-income households continue spending while other consumers cut back.
Ford’s analysis supports the idea that the effects of higher interest rates aren’t being felt equally. Higher-income households may be better positioned to withstand elevated borrowing costs, particularly if they already have fixed-rate mortgages or substantial investments.
Other households face greater pressure from debt payments and everyday expenses. That difference matters for small businesses because customer spending patterns may become increasingly uneven.
When Should Small Business Owners Start to Worry?
Ford says the rise in Treasury yields deserves attention, but it doesn’t necessarily signal an immediate financial crisis.
He points out that although government bond markets have experienced significant volatility, other indicators of financial stress have remained relatively contained.
In particular, investors haven’t yet demanded dramatically higher premiums for holding corporate debt, suggesting that broader concerns about companies’ ability to repay their obligations haven’t escalated to the same degree.
Ford sees a difference between Treasury yields rising gradually and yields climbing sharply over a short period.
A gradual increase may be manageable if financial markets remain orderly and businesses can continue accessing credit. A sudden jump, particularly if accompanied by rising borrowing costs across the economy and deteriorating credit conditions, would be more concerning.
But Ford also warns that even without an immediate crisis, keeping the 10-year yield above 5% for an extended period could create problems. Businesses refinancing debt, commercial property owners, and consumers seeking mortgages could face higher costs as existing financing arrangements expire.
The longer rates remain elevated, the more those costs can work their way through the economy.
What Should Small Businesses Do Now?
Small business owners can’t control Treasury yields, but they can prepare for the financial pressures higher rates may create. If you’re planning to borrow, compare financing options carefully and calculate how different interest rates would affect your monthly payments and cash flow.
If existing debt needs to be refinanced, review the terms and timing now rather than waiting until the loan matures.
And pay close attention to customers’ changing spending habits. Businesses that recognize shifts in demand early may be better positioned to adjust pricing, product offerings, and marketing.
Higher interest rates don’t affect every business or customer equally. Understanding where your business is most vulnerable can help you make better decisions.
My Takeaway
The 10-year Treasury yield isn’t just a number for bond traders. It’s a signal that borrowing money is becoming more expensive across the economy.
For small businesses, the consequences can show up in higher financing costs, reduced consumer spending, and tougher decisions about expansion and investment.
The important distinction is between a temporary market disruption and a prolonged period of expensive credit. Neither automatically means a recession, but both deserve attention.
Now is a good time to review borrowing needs, cash flow projections, and customer spending trends. Small businesses that understand how higher interest rates affect both their expenses and their customers will be better prepared to respond.
Rieva Lesonsky is the founder of Small Business Currents, a content company focusing on small businesses and entrepreneurship. You can find her on Twitter @Rieva, Bluesky @Rieva.bsky.social, and LinkedIn. Or email her at Rieva@SmallBusinessCurrents.com.
