SIGNIFICANCE OF 10-YEAR US TREASURY RATES

There are various reasons on why investors monitor treasury bond yields or rates. Yields on this derivative are paid by the American government as interest for borrowing money through selling the bond.

But what is the rationale behind 10-year US Treasury rates? Why most of the investors follow this bond? How do rates and yields affect their investment? How do they attain such details?

Assimilating the significance of the 10-year US Treasury bond yield entails understanding the return on investment for this vehicle. This economic indicator serves in lieu of several other vital financial matters, including mortgage rates. Sold at auction by the US government, this security can indicate investor confidence. Its price declines and yields increase when confidence is high since investors are assured they can obtain higher returning investments and they do not feel the necessity to play it safe. Conversely, the price increases due to a higher demand for this investment while yields drop when confidence is low. Other countries also take into consideration the confidence factor in bonds. Geopolitical situations of other nations with the US, considered a safe haven, frequently affect the price of US government bonds, gliding the prices of these bonds up and decreasing yields.

Time to maturity is the other factor linked to the yield. The longer the time of the treasury bond, the higher the rates or yields. Investors demand for a higher payment as their investment is linked to their money for a long time. The most common curve is the normal yield curve, but there are times the curve can be reversed, such as higher yields at lower maturities.

Knowing the historical pattern of 10-year treasury yields is an integral component of comprehending the previous and present yield rates. While these rates have no broad dispersion, any change is deemed highly important. Huge changes (100 basis points over time) can alter the economic landscape. To get at least an idea if near term rates will increase or decrease, compare rates at present and historical rates, or follow the trend. The Department of Treasury has posted the past and current rates in their website for investors to easily evaluate and chart 10-year treasury bond yields.

Its yield conveys more than its return on investment. Hence, making this instrument a game changer. Although its yield range does not appear wide, any basis point movement transmits a signal to the market.