10-Year Treasury Yield

What It Measures

The 10-Year Treasury Yield represents the return investors receive for lending money to the U.S. government for 10 years. It's considered the "risk-free" rate because U.S. Treasuries are backed by the full faith and credit of the federal government.

Why It's the Most Important Rate

• Mortgage Rates: 30-year fixed mortgage rates are directly tied to the 10-year yield (typically 10Y + 1.5-2% spread).
• Corporate Borrowing: Companies price their bonds relative to Treasuries. Higher yields mean higher borrowing costs.
• Stock Valuations: Future earnings are discounted by interest rates. Higher yields = lower present value of growth stocks.
• Global Benchmark: The 10Y is used worldwide to price risk and compare investment returns.

What Drives the Yield

• Inflation Expectations: Higher expected inflation pushes yields up (investors demand more return to offset purchasing power loss).
• Economic Growth: Strong growth increases demand for capital, pushing yields higher.
• Federal Reserve Policy: Fed rate hikes ripple through to longer maturities, though the relationship isn't 1:1.
• Flight to Safety: During crises, investors buy Treasuries, pushing yields down (price up = yield down).
• Supply/Demand: Government borrowing needs and foreign central bank purchases affect yields.

Historical Context

• 1980s peak: ~15% (Volcker Fed fighting inflation)
• 2000s average: 4-5% (normal economic conditions)
• 2008-2020: 1.5-3% (post-GFC, QE era)
• 2020 low: 0.5% (COVID panic, massive Fed intervention)
• 2022-2024: 3.5-5% (inflation fight, rate normalization)

Trading Signals

• Rising Yields: Bearish for bonds (TLT), often bearish for growth stocks (QQQ), bullish for financials (banks profit from higher rates).
• Falling Yields: Bullish for bonds, often bullish for growth stocks, bearish for financials, bullish for gold.
• Yield Spikes: Watch for panic selling in bonds—often creates buying opportunities in rate-sensitive assets.
• Yield Collapse: Signals fear in markets—often precedes or accompanies stock market selloffs.