What Is The 10-Year Treasury Yield? - NerdWallet (2024)

The 10-year Treasury yield (ticker: US10Y) describes what 10-year U.S. Treasury notes will pay over 10 years if bought today. Also known as T-notes, Treasury notes are a low-risk fixed-income investment that pays a set interest rate every six months.

The 10-year Treasury is frequently used in the news as a barometer or proxy for economic factors, including investor sentiment and mortgage rates.

What is the 10-year Treasury?

Considered one of the lowest-risk investments on the U.S. market, 10-year Treasurys are a “risk-free” benchmark against which other investments and debt are compared. (Three-month Treasury bills are another.)

While no investment is ever completely risk-free, Treasury notes come close if held to maturity. As a result, some investors and analysts look to demand for T-notes as one way to assess investor confidence in the economy.

Why is the 10-year Treasury yield important?

As one of the lowest-risk investments on the market, the 10-year Treasury and its yield are important for several reasons. First, investors use the 10-year Treasury as a baseline against which to compare the risks and rewards of other investments.

Treasury rates also affect interest rates for other types of consumer debt, like real estate and mortgage loans. Consumers often compare the return they could earn on Treasurys to certificates of deposit, money market accounts, corporate bonds and even mortgage-backed securities. So when yields for 10-year T-notes go up, real estate and mortgage debt rates do, too.

Finally, supply and demand for Treasurys fluctuate with the economic climate. When markets or world events turn tumultuous, investors tend to flock to Treasurys in search of a safe haven. When times are good, investors tend to seek out other investments that can provide a more favorable return.

Are 10-year Treasury notes a good investment?

Whether 10-year Treasurys are a good investment depends on your investment goal. If your goal is to let your money grow slowly and conservatively over time, Treasury notes are considered a low-risk investment if held to maturity since the U.S. government backs them.

One of the main risks with Treasury notes is what’s known as “opportunity cost”: You could forgo potential profits by investing in T-notes instead of a security with a higher potential return.

Price vs. yield

Treasury prices and yields tend to move in opposite directions and are affected by supply and demand and the health of the economy. The purchase price or face value of a Treasury note is what you pay to buy it. The T-note’s yield is the interest rate you earn for loaning the government money.

The U.S. government sells Treasury notes at auction through a bidding process. First, the Treasury accepts any noncompetitive bids or bids from investors who buy at the current T-note rate and yield. Then, it accepts the highest competitive bid.

If demand for Treasury notes is high, they may sell for more than their face value. If demand is low, on the other hand, Treasurys can sell for less than their face value.

The Treasury may raise the yield of newly issued 10-year notes if the price of existing 10-year notes starts to fall on secondary bond markets (because of market forces like inflation). If there's high inflation, for example, the potentially higher yield of newly issued 10-year notes will make them more attractive than previously issued T-notes.

This effect is also known as interest rate risk and is most relevant for investors trying to sell T-notes on a secondary market. If held for their full duration, Treasury notes still pay their coupon payments and principal in full. But if a T-note-holder were to sell early, they may have to discount the price.

Longer-term investments tend to offer higher yields to offset any potential price impact from interest rate or other risks.

How do you buy 10-year Treasury notes?

Treasury notes can be bought in increments of $100 directly from the U.S. government via TreasuryDirect or through a bank or broker. T-notes can also be purchased bundled together as a Treasury exchange-traded fund.

Do you pay tax on T-notes?

Investors pay federal income taxes but no state or local taxes on T-notes and other Treasurys.

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