What the 10-year Treasury yield tells you
The 10-year Treasury yield affects mortgages, loans and stock prices. Here is what it is, why it moves, and why investors watch it so closely.
Market reports often mention "the 10-year yield". It is one of the most watched numbers in finance. It helps set the cost of borrowing across the US economy, and it often moves stock prices.
What it is
A Treasury is a loan to the US government. When you buy a 10-year Treasury note, the government promises to pay you interest and give your money back after 10 years.
The yield is the yearly return you get if you buy the note at today's price and hold it to the end. It is shown as a percentage.
Why price and yield move in opposite directions
Treasuries are bought and sold every day after they are issued. Their prices change, but the interest payments are fixed.
Here is an example with round numbers. A note pays $30 a year. If you pay $1,000 for it, that is a 3% return. If its price falls to $900, a new buyer still gets $30 a year on a smaller outlay, so the yield rises.
So when people sell Treasuries, prices fall and yields rise. When people buy, prices rise and yields fall.
What moves it
- Expected interest rates. If investors think the Federal Reserve will keep rates high, the yield tends to rise.
- Inflation. Lenders want more interest when they expect prices to rise faster.
- Fear. In a scare, investors often buy Treasuries as a safe place for money, which pushes yields down.
- Government borrowing. More borrowing means more notes to sell, which can push yields up.
Why it matters to you
Many loan rates follow the 10-year yield. In the US, mortgage rates tend to move with it. Companies also pay more to borrow when it rises.
It matters for stocks too. A higher yield means a safe bond pays more, which makes stocks look less attractive by comparison. That is one reason stocks often fall when yields jump. See How interest rates move stock prices.
What it can signal
The 10-year yield is set by investors, not by a central bank. So it shows what the market expects about growth and inflation over many years.
A falling yield can mean investors expect slower growth. A rising one can mean they expect stronger growth, higher inflation, or both.
The Canadian side
Canada has its own version, the Government of Canada 10-year bond yield. It often moves in the same direction as the US yield. For Canadian fixed-rate mortgages, the 5-year Government of Canada bond yield is the one most closely watched.
The short version
- The 10-year yield is the yearly return on a 10-year US government loan.
- When Treasury prices fall, yields rise, and the reverse.
- It influences mortgage and loan rates.
- Rising yields often weigh on stock prices.
This is general information, not investment advice.
Updated