Market Note: Long-term interest rates may signal trouble

A decline in long-term Treasury yields is often a good thing: it makes mortgage loans and other long-term borrowing cheaper. 

Also, it can boost stocks, because of that cheaper borrowing for companies and because falling rates make bonds less attractive for investors seeking income.

But the most recent drop in interest rates isn’t so beneficial, as it reflects investors’ anticipation of a serious economic slowdown or perhaps a recession. The 10-year Treasury yield has dropped 49 basis points to 4.31% since Jan. 13. That has pushed the 30-year fixed mortgage rate down to 6.67%, the lowest level since early December.

A number of recent developments have pointed to a weak economy. Tariff policy – both increases and reversals of announced increases – will weigh on business and consumer demand, experts say. Consumers already have begun pulling back, with personal consumption spending dipping 0.2% in January from December. Airlines and retailers have warned of weaker demand to come.

So it’s no wonder that Goldman Sachs just cut its forecast for 2025 economic growth to 1.7% from 2.2% previously. That compares to a 2.8% expansion last year.

So this time around, beware of sliding long-term interest rates.