Why the 10-Year U.S. Treasury Yield Matters
Treasury bond yields (or rates) are tracked by investors for many reasons. The yields on the bonds are paid by the U.S. government as "interest" for borrowing money (via selling the bond). But what does it mean and how do you find yield information?
Why is the ten-year treasury yield so important?
The importance of the ten-year treasury bond yield goes beyond just understanding the return on investment for the security. The ten-year is used as a proxy for many other important financial matters, such as mortgage rates.
This bond, which is sold at auction by the U.S. government, also tends to signal investor confidence. When confidence is high, the ten-year treasury bond's price drops and yields go higher because investors feel they can find higher returning investments and do not feel they need to play it safe.
But when confidence is low, the price goes up as there is more demand for this safe investment and yields fall. This confidence factor can also be explored in non-U.S. countries. Often the price of U.S. government bonds is impacted by the geopolitical situations of other countries with the U.S. being deemed a safe haven, pushing the prices of U.S. government bonds up (as demand increases) and lowering yields. (Read more about How Bond Market Pricing Works.)
Another factor related to the yield is the time to maturity such that the longer the treasury bond's time to maturity, the higher the rates (or yields) because investors demand to get paid more the longer the investment ties up their money. This is a normal yield curve, which is most common, but at times the curve can be inverted (higher yields at lower maturities).
10-Year Treasury Yields
Because the ten-year treasury yields are so closely followed and scrutinized, knowledge of the historical pattern is an integral component of understanding how today's yields fare as compared to historical rates.
While rates do not have a wide dispersion (rates have fallen within a range of 5.26% to 1.37% in ten years), any change is considered highly significant and large changes -of 100 basis points- over time can redefine the economic landscape.
Perhaps the most relevant aspect is in comparing current rates with historical rates, or following the trend to analyze if the near term rates will rise or fall based on historical patterns. Using the website of the U.S. Treasury itself, investors can easily analyze historical ten-year treasury bond yields.
The Bottom Line
The ten-year treasury is a economic indicator in a sense that its yield tells investors more than the return on investment. While the historical yield range does not appear wide, any basis point movement is a signal to the market.
Read more: Why the 10-Year U.S. Treasury Yield Matters | Investopedia https://www.investopedia.com/articles/investing/100814/why-10-year-us-treasury-rates-matter.asp#ixzz560Y88g74
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