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How Does 10-year Treasury Yield Impact Financial Landscape?

Theresa Grant
Homebuying Resources

The 10-year U. S. Treasury yield serves as a vital economic benchmark for borrowing rates, such as mortgage rates.  It’s closely watched as an indicator of broader investor confidence that is affected when the Treasury yield fluctuates.

This translates to whether you want to invest in the stock market, purchase a house, buy a car, or borrow money for corporate business, the Treasury yield has influence over all of it.

It’s important to understand the 10-year Treasury yield is the rate of return on just one of a handful of securities issued by the U.S. government. Others include Treasury bills, notes, and bonds which are fixed-income investments that carry the full backing of the U.S. government and are viewed as safe investments.

Here’s a breakdown of the differences between the Treasury securities:

  • Treasury bills (known as “T-bills”)are short-term securities that mature at terms ranging from a few days to 52 weeks. T-bills are sold at a discount to their face value, which means they will provide investors with returns by paying them back at the full rate (not the discounted rate).
  • Treasury notes (known as “T-notes”) are issued for terms of two, three, five, seven and 10 years. T-notes pay interest every six months and return their face value at maturity.
  • Treasury bonds (known as “T-bonds”) are the longest-term government securities that are issued for 20 and 30 years. T-bonds also pay interest every six months and return their face value at maturity.

The 10-year Treasury yield can significantly affect the financial environment, meaning movement in yield can create volatility. The correlation between mortgage rates and Treasury bond rates is ultimately determined by where investors want to invest their money.

Examples of how volatility can create change:

  • A rising yield indicates falling demand for Treasury bonds, which means investors prefer higher risk, higher reward investments. A falling yield suggests the opposite.
  • When the 10-year Treasury yield goes up, usually mortgage rates also increase. However, when the 10-year yield declines and mortgage rates fall, the housing market strengthens. This most likely impacts the economy in a positive way.

About the Author

Theresa Grant

Communications Associate

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