Don’t panic about Treasury notes at 3%. They were 15% not so long ago.

Millennials would like to buy
Millennials would like to buy
Image: Reuters/Mark Blinch
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When it comes to debt, the benchmark is the 10-year US Treasury government bond—and its yield sets the cost of borrowing for almost everything around the world.

The 10-year broke through 3% this week, for the first time since 2014. The increase in yields is partly due to the Fed unwinding its multi-trillion-dollar balance sheet as well as an increase in US borrowing to fund the deficit. For most people, the biggest impact will be in their personal cost of borrowing—mortgages, credit-card interest payments, and auto loans—because treasury yields directly impact interest rates.

And this may be especially anxiety provoking for millennials.

For millennials, rising rates play directly into the group’s biggest fear: debt. In a recent survey, 39% of millennials rated debt as being their biggest source of money stress. What’s more, two-thirds of respondents said they have never learned how to handle debt. While millennials are most concerned about credit-card debt (27%) and student loans (25%) rather than a mortgage (12%), when asked what they would do if they had no student loans, the top choice was to buy a home (41%).

With the 10-year rate now back up to 3%, the 30-year Treasury rose to 3.18% this week. The 30-year is the one linked to home mortgages, and homes are often a family’s biggest asset. For millennials, a rise to 3% might me the most they’ve ever paid to borrow—and it’s probably terrifying to them. But any American who’s 55 and older probably remembers how it felt to pay big bills to the bank every month.

Back in 1981, the cusp of when the oldest millennials were born, interest rates were something to really worry about—the 10-year note peaked at 15.84% and the 30-year fixed rate hit a high of 18.63%, which is a level unthinkable today. When many baby boomers were buying their first homes, buying a house was expensive. The average house price was $82,500 in 1981, meaning a monthly mortgage payment of just over $1,000 per month—or around $2,860 in today’s money, assuming a 20% down payment.

Based on today’s median house price of $328,000, if interest rates were back up at 18%, the average monthly payment would be over $4,000. This compares to today’s median payment of $1,030.

In 1981, the benchmark interest rate set by the US central bank was above 14%. Today, it is 1.75%. The current expectations for the Federal Reserve is it will raise the its benchmark rate to around 2.9% in 2019 and 3.4% in 2020. For millennials with debt who have grown up in a world where rates have been at their lowest in modern history, higher rates might take a reset of how much money goes out of pocket to service debt—but in historical terms, it’s not something to be scared about just yet.