The 10-year Treasury note is a way to invest money in the US government. You lend money to the government for a decade and earn interest. It seems strange, doesn’t it? You, participating in the financing of the United States operation?
You may ask: is it a good investment? What is the yield? Does the 10-year Treasury note have anything to do with mortgage rates – and if so, how?
Let’s get started.
In this article:
What is a Treasury note?
The 10-year Treasury note is issued by the U.S. Treasury to anyone willing to lend money to the United States in exchange for interest on the amount borrowed by the government. Anyone can buy Treasury bonds: individuals, financial institutions and even foreign governments. The 10-year note is just one version of Treasury notes, which come in various maturities ranging from two to 10 years.
Interest on bonds is paid semi-annually until the end of the term, which is called “maturity”. The interest rate on the note you purchase is fixed and never changes.
Because Treasury notes are issued and guaranteed by the U.S. government, they are considered one of the safest investments available.
How the 10-Year Treasury Affects Mortgage Rates
The 10-year Treasury is a benchmark for long-term national interest rates, especially mortgage rates. However, home loan interest rates are determined by a variety of market factors, including:
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General economic conditions
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Financial markets as a whole
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Inflation
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Federal Reserve Interest Rate Movements
However, mortgage rates and the 10-year Treasury tend to move in unison. If the 10-year Treasury yield rises, mortgages typically do as well – but with a margin of separation. Historically, the difference between the two has been between one and two percentage points. More recently, this difference has increased to almost three percentage points.
For example, on August 5, 2024, the 10-year Treasury yield was 3.78% and 30-year mortgage rates were 6.47%.
Go deeper: When will mortgage rates fall?
What is a Treasury Yield?
Treasury yield is the return you get on your investment. Quite simply, it is interest – expressed as a percentage. You lend money to the government; pays fixed interest every six months. If you buy a 10-year Treasury yielding 3%, you’ll earn 3% interest annually (and the interest doesn’t compound). This interest payment is also called a coupon.
After 10 years, you will receive your original investment back. For example, you will receive an interest payment every six months, and when a 10-year $1,000 Treasury note matures, you will receive back the face value of $1,000 – but there will be no further interest payments. .
Find out more: CDs vs. Treasury Bills – Which one should you choose?
10-Year Treasury Yield Chart
You can check the movement of 10-year Treasury yields on Yahoo Finance. The chart allows you to expand historical data from one day to five years, or click “all” or “maximum” and make the chart full screen to stretch the 10-year Treasury rate history to early 1962.
Yields and prices: what they are and how they work
Every finance expert can tell you about the “seesaw” effect of prices and yields. Both are considered economic indicators and move in opposite directions.
When prices rise, incomes fall. Anxious investors buying into the Treasury market drive up note prices. As a result, new Treasury buyers receive lower interest payments (yields). When yields fall, it suggests that investors believe inflation will decrease or that the economy will slow down.
When prices fall, yields rise. New buyers of Treasury notes earn a higher return (yield) relative to the bond’s price. Higher yields often indicate that investors believe higher inflation or stronger economic growth will occur.
10-Year Treasury Note FAQ
What is the difference between Treasury bills, notes and bonds?
Treasury bills, Treasury notes, and bonds are the same debt instruments with different maturities. Treasury bonds have maturities of four to 52 weeks. Notes are generally issued with maturities of two to 10 years. Bonds are issued with maturities of 20 or 30 years.
Is a 10 year Treasury a good investment?
Since Treasuries are considered risk-free, they are known as a good but low-return fixed income investment. When it comes to investing, the lower the risk of loss, the lower the potential return. Investments with a higher risk of loss, such as ETFs, cryptocurrencies and the stock market, have the highest possible return. Generally, wise investors use a combination of investments that balance the overall risk and return of a portfolio.
How long do I have to hold a 10 year Treasury note?
You can sell a 10-year Treasury note at any time after holding it for at least 45 days, but the full face value of the investment is only guaranteed if you hold it until maturity. Remember that market prices and yields fluctuate daily, so you could sell at a loss if you don’t have the note by the end of the term.
How can I buy a 10 year Treasury?
Treasures are sold in digital format (paper Treasures were eliminated in 2011) through TreasuryDirect.gov. You only need a minimum purchase of $100, and you can purchase notes in $100 increments maturing in two, three, five, seven, or 10 years. Federal tax is due on the interest you earn annually, but the Treasury does not charge state or local taxes.
This article was edited by Laura Grace Tarpley.
