Rising Treasury Yields Hit a 19-Year High: 5 Tax-Smart Moves for Retirees

Rising Treasury yields are the biggest money story of the fall for retirees. The 10-year Treasury yield reached 5.26% on September 29th. Meanwhile, the 30-year yield hit 5.59%, according to the Federal Reserve’s H.15 release. Both levels are the highest in roughly two decades. As a result, many bond fund statements look worse this quarter than retirees expected.

However, higher yields also create real opportunities. At BANDER Wealth Management, our CFP® professionals and in-house CPAs look at moves like these through a tax lens first. We serve clients nationwide from offices in Idaho Falls, Boise, Denver, Provo, and Gilbert. This post covers what’s driving the move, what it means for your portfolio, and five moves to consider before year-end.

What’s Behind Rising Treasury Yields

Several forces are pushing long-term yields higher at the same time.

• A stronger economy. Growth has run well ahead of forecasts this quarter. So, investors see less reason to expect rate cuts soon.
• Stubborn inflation. Consumers now expect inflation of about 4.6% over the next year. Bond buyers want higher yields to make up for that.
• A Fed moving the other way. The Fed raised rates on September 16 for the first time since 2023. Our post on the 2026 Fed rate hike covers what that meant for CDs and savings.
• Heavy government borrowing. Large federal deficits mean more new bonds for investors to absorb.

Notably, the Fed sets short-term rates, while the bond market sets long-term yields. That’s why the 10-year and 30-year yields can climb faster than the Fed moves.

What Rising Treasury Yields Mean for Your Money

Bond prices move in the opposite direction from yields. Consequently, bonds you already own are worth less today than they were last spring. Longer-term bonds and bond funds feel this most.

On the other hand, new money now earns more than it has in years. A retiree buying a 10-year Treasury today locks in over 5% for a decade. In addition, borrowing costs have jumped. The average 30-year fixed mortgage rate reached 7.28% over the September 26 weekend.

The table below shows how the IRS and states tax common income investments. That matters, because two investments with the same yield can leave you with different after-tax income.

Investment	Federal Income Tax	State Income Tax
U.S. Treasury bonds, notes, and bills	Taxable	Exempt
Bank CDs and savings accounts	Taxable	Taxable
Corporate bonds	Taxable	Taxable
Municipal bonds	Generally exempt	Often exempt in your home state
Bond funds	Depends on holdings	Depends on holdings

Five Tax-Smart Moves for Rising Treasury Yields

None of these moves requires a prediction about where rates go next. Instead, each one uses today’s numbers to lower your tax bill or lock in income.

1. Harvest Losses in Your Bond Funds

Is a bond fund in your taxable account worth less than you paid? If so, you can sell it to realize the loss. That loss can offset capital gains elsewhere, such as gains from this year’s strong stock market. Beyond that, up to $3,000 of extra losses can offset ordinary income each year.

Then, you can buy a similar fund that tracks a different index. That way, you stay invested in bonds while keeping the tax loss. Just avoid a substantially identical fund within 30 days, or the wash-sale rule disallows the loss. Loss harvesting is one of several moves in our year-end tax planning guide.

2. Favor Treasuries in Taxable Accounts

Treasury interest is taxable at the federal level. However, the IRS confirms it is exempt from state and local income tax. For residents of states with an income tax, that edge adds up.

For example, assume a 5% state income tax rate. A CD paying 5.2% keeps about 4.94% after state tax. In contrast, a Treasury paying 5.2% keeps the full 5.2% at the state level. On $200,000, that difference is about $520 a year. Therefore, compare yields after state tax, not before.

3. Build a Ladder to Lock In Today’s Yields

A bond ladder spreads your money across bonds that mature in different years. For instance, you might buy Treasuries maturing in each of the next five years. As each one matures, you spend the cash or reinvest it.

Because you hold each bond to maturity, you get your full principal back. So, price swings along the way matter much less. A ladder can also cover spending while you delay Social Security for a larger benefit. Our Social Security claiming strategy guide explains how that bridge works.

4. Consider a Roth Conversion While Values Are Down

You pay tax on a Roth conversion based on the value of what you convert. So, converting bond holdings while their prices are down lowers the tax bill on that conversion. If prices later recover, that recovery grows tax-free inside the Roth.

Still, bonds usually grow more slowly than stocks. Thus, converting depressed bonds is only one piece of the decision. Our guide to Roth conversion strategies covers how to size and time a conversion.

5. Watch How Extra Interest Affects Your MAGI

Higher yields mean more interest income, and that income raises your modified adjusted gross income (MAGI). As a result, it can push you into a higher Medicare IRMAA bracket two years from now. It can also shrink the new senior deduction.

Tax-exempt municipal bond interest doesn’t escape this, either. IRMAA adds it back into MAGI. Likewise, it counts toward the formula for taxing Social Security benefits. Our IRMAA planning strategies guide shows where the brackets sit.

What Not to Do When Yields Rise

A few common reactions tend to backfire. First, don’t sell bonds in a panic without a tax plan. If you sell, capture the loss deliberately and stay invested. Second, don’t move everything into long-term bonds to chase the highest yield. If yields keep rising, those bonds fall the most. Finally, don’t let cash sit idle in a low-rate account while short-term yields are this high.

What Rising Yields Mean if You’re Moving or Buying

Mortgage rates track the 10-year Treasury yield closely. Consequently, anyone relocating in retirement faces higher borrowing costs than a year ago. Some retirees now pay cash from a home sale instead of taking a new mortgage. Our guide to relocating to the Mountain West covers the tax side of a move.

How BANDER Helps Retirees Respond to Rising Treasury Yields

Every move above has a tax consequence. That’s why BANDER pairs CFP® advisors with in-house CPAs through BANDER Accounting Group. Together, we can harvest losses, build a ladder, and time a conversion as one coordinated plan. In addition, we work with retirees in every state through secure virtual meetings.