US Treasury Yields & Bond Rates

The 10 year treasury rate (also called the 10 year treasury yield) is the interest rate the US government pays on debt that matures in 10 years. It serves as a benchmark for mortgage rates, corporate bonds, and other lending rates. The 10 year treasury is one of the most watched indicators in financial markets as it reflects investor expectations for inflation, economic growth, and Federal Reserve policy.

US Treasury yields are the interest rates paid on US government debt securities. These include Treasury bills (1-12 months), Treasury notes (2-10 years), and Treasury bonds (20-30 years). Yields move inversely to bond prices - when bond prices rise, yields fall, and vice versa. Treasury yields are considered "risk-free" rates since they are backed by the full faith and credit of the US government.

The yield curve is a line that plots interest rates across different maturity dates for US Treasury bonds. A normal yield curve slopes upward, meaning longer-term bonds pay higher yields than shorter-term bonds. An inverted yield curve (when short-term rates exceed long-term rates) has historically been a reliable predictor of economic recessions, typically occurring 12-18 months before a downturn.

Treasury yields are influenced by several factors: Federal Reserve policy and interest rate decisions, inflation expectations, economic growth outlook, supply and demand for bonds, geopolitical events, and investor risk appetite. When the Fed raises rates or inflation expectations increase, treasury yields typically rise. During economic uncertainty, investors flee to the safety of treasuries, driving yields down.

Rising treasury yields can negatively impact stocks in several ways: higher yields make bonds more attractive relative to stocks, increased borrowing costs reduce corporate profits, and higher discount rates lower the present value of future earnings. Growth stocks and technology companies are especially sensitive to rising yields. Conversely, falling yields often support higher stock valuations.

The 2 year treasury rate reflects short-term interest rate expectations and is heavily influenced by Federal Reserve policy. The 10 year treasury rate reflects longer-term economic growth and inflation expectations. The spread between these two rates (10 year minus 2 year) is closely watched - a negative spread (inversion) suggests investors expect the Fed to cut rates in the future, often preceding recessions.

High treasury yields can be attractive for income-focused investors, especially when yields exceed inflation rates (providing real positive returns). Treasury bonds offer safety, predictable income, and portfolio diversification. However, bond prices fall when yields rise, so if rates continue climbing, existing bonds lose value. Consider your time horizon, income needs, and whether you plan to hold until maturity or trade bonds.

Treasury bills (T-bills) mature in 1 year or less and are sold at a discount to face value. Treasury notes (T-notes) mature in 2-10 years and pay interest every 6 months. Treasury bonds (T-bonds) mature in 20-30 years and also pay semi-annual interest. All are backed by the US government, but they differ in maturity length, interest payment structure, and sensitivity to interest rate changes.

You can buy Treasury securities directly from the government at TreasuryDirect.gov with no fees or commissions. You can also buy them through banks and brokers, or invest in Treasury ETFs like SHY (1-3 year), IEF (7-10 year), or TLT (20+ year). Treasury ETFs provide liquidity and diversification but charge small expense ratios. Direct purchases are best for buy-and-hold investors.

US Treasury bonds are considered among the safest investments in the world because they are backed by the full faith and credit of the US government, which has never defaulted on its debt. However, they are not risk-free: bond prices fluctuate with interest rates (interest rate risk), and if inflation exceeds the yield, you lose purchasing power (inflation risk). For capital preservation and guaranteed returns, treasuries are excellent choices.

The Federal Reserve controls short-term interest rates (like the federal funds rate), which directly influences short-term treasury yields (1-month to 2-year). Longer-term treasury yields (10-year, 30-year) are set by market forces based on inflation expectations and economic outlook. When the Fed raises rates, short-term yields rise immediately, while long-term yields may rise less or even fall if investors expect slower future growth.

Inflation erodes the purchasing power of fixed bond payments, so investors demand higher yields to compensate for inflation risk. When inflation expectations rise, bond yields increase to provide real (inflation-adjusted) returns. The 10-year treasury yield typically includes a premium for expected inflation over the next decade. When inflation falls, bond yields often decline as well. Compare treasury yields to inflation rates to determine real returns.

An inverted yield curve (when short-term rates exceed long-term rates) has predicted every US recession since 1950, with only one false signal. The 2-year vs 10-year spread is most closely watched. Inversion suggests investors expect the Federal Reserve to cut rates in the future due to economic weakness. However, there is typically a 12-24 month lag between inversion and recession, and markets can remain strong during this period.

Mortgage rates closely track the 10-year treasury yield, typically trading 1.5-2 percentage points higher to compensate lenders for credit risk and prepayment risk. When the 10-year treasury yield rises, mortgage rates usually follow, making homes less affordable. When treasury yields fall, mortgage rates decline, boosting housing demand. This is why the Federal Reserve watches housing markets closely when setting interest rate policy.