Treasury Yield Definition | US News

A Treasury yield refers to the effective yearly interest rate the US government pays on money it borrows to raise capital through selling Treasury bonds, also referred to as Treasury notes or Treasury bills depending on maturity length.

Long-term bond yields are also indicators of investor confidence in the US economy, and when Treasury bonds have low yields, people tend to look to stocks and other investments for better returns.

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The driving principle behind treasury yields is demand. In other words, the higher the demand for treasury bonds, the lower the yield and vice versa. Yields drop when demand is high and rise when demand is low.

That’s because bonds can be sold on the secondary market, where investors can purchase previously issued financial instruments like bonds. If prices on the secondary market differ from the primary market, yields automatically adjust accordingly. For example, if you purchase a bond on the secondary market at a lower price than it originally sold for, its yield would rise because the Treasury still has to issue a payment equal to what the original yield would have produced.

The 10-year yield is a good example of why people pay attention to bond yields. This is a crucial economic benchmark because it affects other interest rates. Mortgage rates and other borrowing costs also tend to increase when the yield on the 10-year note goes up.

Investors typically want to earn as much as possible on their investments, and Treasury bonds are relatively safe investments that don’t tend to pay out as much as other investments, such as stocks or real estate. The Treasury sells bonds at auction, and prices and yields change along with demand. If Treasury yields are high, it means that bond prices are low and investor demand is low due to higher confidence in other investments. The reverse also holds true.

A yield curve refers to a line graph that shows how yields of bonds with the same initial value change according to their maturity dates.

Commonly cited maturity dates include:

  • one month
  • three months
  • one year
  • two years
  • three years
  • five years
  • seven years
  • 10 years
  • 20 years
  • 30 years

Economists compare a common set of yield curves as an indicator of the strength of the economy. If longer-term yields are higher than shorter-term yields, investors tend to have a positive long-term economic outlook.

On the other hand, if the longer-term yields are lower than short-term yields, that indicates a lack of confidence in the long-term strength of the economy.

There are three types of yield curves:

  • normal yield curves slope upward, showing how long-term bonds typically have higher yields to compensate investors for the increased risk of holding bonds over longer periods. This reading indicates that the market anticipates higher interest rates, increasing economic growth and higher inflation.
  • Flat yield curves demonstrate that regardless of the maturity dates of different bonds, their yields are about the same. A flattening curve indicates a transitional period of uncertainty about where the economy is headed. It could mean that there are expectations of decreasing inflation or an impending federal funds rate increase.
  • Inverted yield curves slope downward, which means that short-term bonds have higher yields than long-term bonds. Inverted yield curves often signal an upcoming period of economic decline.

Treasury yields are a useful indicator of the market’s economic outlook. If Treasury yields show that a period of economic growth is likely, investors may want to rebalance their portfolios to include more aggressive, riskier investments to take advantage of shifting macroeconomic conditions.


Between 1955 and 2018, the yield curve inverted before each recession – making it a good warning sign that a period of economic decline is likely. An inversion does not always guarantee a recession, however.

no. A Treasury yield is the effective annual interest rate paid by the US government to a bondholder. A Treasury bond is a loan that you make to the government.

Higher long-term yields mean that demand for Treasury bonds is decreasing, which indicates that investors are looking elsewhere for better returns.


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