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What Is US10YR?

Updated: Jul 28, 2021

U.S.10-Year Treasury Note

US10YR Treasury Yield

The 10-Year Treasury Yield, bonds, maturity rates: these terms all revolve around a rabbit hole called the bond market, which could have a significant impact on the movements of the financial markets.

Recently, the term 10-Year Treasury Yield has increasingly popped up in the news and a whole fuzz has been made about it.

CNN even calls the 10-Year Treasury yield, or the bond market as a whole ‘Wall Street’s new bogeyman’ – but why is that, exactly?

This, exactly, is what we are looking at in the article. We will be looking at

So, buckle up and enjoy the ride!

What Is the US10YR Treasury Rate?

Before we could dive into what the 10-Year Treasury yield or US10YR means, we should look at what Treasury securities are in the first place.

Consider a situation where the US government would like to build more schools or better roads. In order to execute this project, the government needs to raise money – or capital.

They could bring in more revenue, through either increasing taxation, or they could borrow through issuing obligations: the Treasury securities.

What the government essentially is saying when they are creating a Treasury security is something in the order of

‘Hey investor, we would like to execute a really nice project, and we would like to present you with an excellent opportunity to lend money to us. Of course, we, the government, will pay you back in time – with interest!’

This must sound lucrative, right? These securities are provided by an institution, whose reputation precedes them.

After all, when the government wants to borrow money from you – it surely must be one of the safest investments one could get...?

Of course, the government realises that investors are not just willing to lend out money all day and all night. Investors want something in return. As a result, the government promises a return on that investment – the Treasury yield.

Now, it has been mentioned earlier that the government promises to pay back they have borrowed from investors in due time. This time could vary, depending on the type of security. This is where the three types of Treasury securities come in:

  • Treasury bills

  • Treasury notes

  • Treasury bonds (or long bonds)

The Treasury bills have the shortest period of repayment (the ‘maturity rate’), ranging from 4 weeks to 52 weeks (1 year). The T-Bills (as they are often called) are auctioned every week. Often, these do not pay additional interest on the bond.

The Treasury notes are securities that have intermediate maturity rates, ranging from 2, 3, 5, 7 or 10 years. These are sold at auctions that take place monthly for 2, 3, 5 and 7-year Treasury notes, whereas the auctions for 10-Year Treasury notes take place every quarter in February, May, August or November.

Lastly, the Treasury bonds are the securities with the longest maturity rates, with no longer than 30 years. Since 2020, the US Treasury is also re-issuing the 20-Year Treasury bonds again. These are auctioned quarterly as well.

Out of the various Treasury securities, the investors most frequently look at the 10-Year Treasury note, abbreviated as the US10YR note.

How Does a US10YR Bond Work?

Earlier, we have mentioned that when the government borrows money from investors through issuing the Treasury securities, they also pay out an interest rate – also known as the Treasury yield.

Every Treasury security has a different yield and since it is somewhat more risky to lend money to the government for a longer period, the yield on longer-term Treasury securities (bonds and notes) are higher than on short-term securities (bills).

Nevertheless, Treasury securities generally are reputable for having low risks – since the investor is literally lending money out to the government, and the government faithfully promises that the investor will receive their money back.

When purchasing the US10YR, the investor is loaning the government for a period of 10 years and in return, the initial loan is paid back in fixed instalments – also known as coupons. In addition to these repayments, the US10YR is issued with a fixed interest rate (the yield) set from the moment of purchase.

The government proceeds with issuing the US10YR note, or any other Treasury security, through auctions. Each bond has a purchase price and a face value (also known as par value), and looks like this:

Source: The Joe I. Herbstman Memorial Collection of American Finance

The example above shows a 10-Year Treasury note, issued on 16 August, 1976 and with a maturity date of 15 August, 1986 for a face value of $5,000 and a coupon rate of 8%.

This means that per year, 8% of the bond is paid out to the bondholder, whom we assume is named Bob. Based on the 8% coupon rate, this means that the annual payment amounts to (0.08 × 5,000 =) $400.

However, a bond is often paid out every 6 months, meaning that the bondholder receives $200 per 6 months.

This means that over the course of 10 years, the investor receives 20 payments of $200. At the end of the 20th six-month period, the government will repay the initial face value to the bondholder: Bob.

What Causes US10YR Yields to Rise or Fall?

This might seem nice and all, but there is one more aspect we have to consider that is essential to understand how yields rise or decrease: the price Bob has paid to buy the bond.

After all, he has to attend the auction for it, right? At the auction, the principles of supply and demand determine what the true return is on the bond, after Bob has purchased it.

Taking the bond above as an example with a face value of $5,000, let’s assume that it was crowded at the auction and many people wanted to buy this US10YR bond.

The demand was high.

As a result, the price of the bond was not $5,000 anymore, but driven up to $5,200 – and Bob buys the bond at this price.

Knowing these variables, it becomes easy to calculate the Treasury yield, using the following formula:

In this formula, C is the coupon payment, FV is the face value of the bond, PP is the price paid for the bond and T is the time to maturity.

Let’s keep it simple and just take the bond that was discussed earlier as an example. With a 8% coupon rate per year, C would be $400. The FV is $5,000, and the timeframe is 10 years towards maturity. Earlier, we have mentioned that Bob paid $5,200 and we can insert this into the formula:

The yield is 7.45% - which is actually pretty high. Remember, however, that we are looking at a 10-Year Treasury note from 1976!

So, this is what it kind of looks like:

In a more extreme situation, let’s just say that in another situation, the demand was so high, that the price for the $5,000 bond skyrocketed even more leading to a premium price of $5,800 – instead of $5,200. Changing a few numbers in the formula shows a different Treasury yield:

So, what can we see? The demand was much higher, the price increases – and the yield on the Treasury note decreases!

What would happen, when the opposite occurs? In another situation, the demand for the US10YR note was very low at the auction.

Because of that, the price for the bond fell even below the face value of the bond. Assume that the price Bob has paid for the bond was $4,800. Now, the formula changes and subsequently, the yield:

This is essentially what happened:

Because of lower demand for the Treasury notes, the price decreases and the return on the bond increases!

Source: RedPill Data

What we can see is that after all, many movements can be attributed to supply and demand, which brings us to the following point: what happens when the US10YR rises (and vice versa)?

What Happens When the US10YR Treasury Yield Rises and Falls?

Remember that, as traders, we have to look at an economy from a broader perspective.

In this case, we have to consider the relationship of the 10-Year Treasury yield and the interest rates as well…

Interest rates refer to the amount of money borrowers will have to pay to the lenders of money, in addition to the original amount of money they have borrowed. When large institutions are lending money to each other, there is a specific interest rate as well called the Federal Funds Rate (FFR).

You can now imagine that when the Federal Funds Rate is high, institutions would like to simply lend money to each other, while institutions increase their own interest rates on this FFR.

Investors or traders could just deposit money at a bank, let it sit and earn interest. These earnings are incredibly low-risk, and I mean, it is almost as if it is free money, isn’t it...?

Now, just take a moment and consider investors to be smart people. Consequently, you could assume that investors look for investments that bear low risks, while providing higher returns.

From a simple point of view, this means that when the interest rates are lower, investors would rather buy up bonds – at least these provide a decent return, right?

However, this last for a while, until the (high) demand for bonds increases the price and decreases the yields for bonds again.

In contrast, when the interest rates are high(er), instead of buying bonds, investors would sell off their bonds and deposit money for a decent interest rate. The sell-off in bonds leads to a lower price, and what? A higher bond yield!

What happens when the bond yields tick higher is that investors and institutions start to become aware of that the economy might be contracting – essentially, a higher 10-Year Treasury yield means that both the price and the demand for bonds start to drop.

What this also means that the people either are not *that* willing to lend money to the government anymore, or that the economy is slowing down…

Just because of some bond yields ticking up and the stock market is under pressure as a result…

Source: CNBC

Why Is the US10YR Yield Important?

The yield of the 10-Year Treasury note is based on supply and demand, and it therefore plays a role as an important indicator. Interestingly, the 10-Year Treasury yield plays a role as both a leading as well as a lagging indicator.

How in the world can bond yields be both leading and lagging indicators?

On one hand, the bond yields are leading indicator as it shows how the central authorities, the Federal Reserve (the Fed) in the case of the 10-Year Treasury yield will react.

It then acts as a prediction.

On the other hand, the bond yields are lagging indicators as they are consequences of the Fed’s reactions.

Bit of a contradiction, isn’t it?

Well, whether it is a leading indicator and lagging indicator is dependent on the context.

Now, back to the leading and lagging indicators.

Just take for example a situation where investors the interest rates are low, and investors have been buying up bonds for a while leading to lower bond yields as well.

However, just as in the last couple of weeks, the bond yields have slowly started to increase...

What does this mean?

Investors have been selling off their bonds, as they could be preparing for higher interest rates, or they are starting to lose confidence in lending money to the government. What the bond yields are doing is signalling and predicting a contracting economy – acting as a leading indicator. Because of the higher yields, you could expect the interest rates to follow as well.

On the other hand, since interest rates are reactions from central authorities themselves, whether the bond yields increase or decrease as a reaction on interest rates could therefore also be seen as a lagging indicator! When the interest rates increase, the bonds are sold off and the yields increase as well.

Now we have seen that yields could both lead or lag, so why not have both?

How Does the US10YR Affect the Mortgage Rates?

Let’s take a practical example of mortgage rates.

Is it a good time to buy houses, when the 10-Year Treasury yield is low?

Earlier, we have mentioned that the bond yields are intrinsically linked with the interest rates. When the interest rates are low, people rather buy bonds, right? This pushes the price of bonds higher, while pushing the bond yields down.

Subsequently, when institutions are lending to each other with lower interest rates, these institutions are also lending to retail borrowers with lower interest rates.

When you read in the news that the 10-Year Treasury yield is decreasing, you could already expect that interest rates either have been decreasing or will be decreasing in the near future.

That could be a good time to take out a loan, because the mortgage rates will most probably follow suit!

The opposite happens when the yield is increasing. A higher bond yield 1) leads to a higher interest rate or 2) is a reaction because of higher interest rates. Either way, the mortgage rates follow suit when the yield increases.

How to Make Money with US10YR Treasury Yields?

After all the yapping about interest rates, Treasury securities and supply and demand, let us now make the jump toward the practical implications for traders.

What Do US10YR Bond Yields Tell Us?

What should traders do when the 10-Year Treasury yields rise, and when the yields decrease?

When traders continuously are thinking from a perspective of whether an economy is expanding or contracting, one could also apply the knowledge about Treasury yields to the perspective as well.

Recall that when the yields increase, there is a high probability that the interest rates also increase. When the interest rates within an economy increase, the currency is withdrawn from the economy, and the economy is contracting.

This is deflationary

As a result, when there is less of a currency – the currency’s value goes up!

The opposite happens when the yield decreases. With a lower yield, there is a high probability that interest rates will fall as well. With lower interest rates, more money is in circulation within an economy and the value decreases.

This is inflationary

As traders, you would then know what to do.

You should buy when the value is supposed to go up, and you should sell when the value goes down.

In figure above, we could see the data for the 10-Year Treasury yield, published weekly by the Fed since 1962.

We can see that the magnitude of bond yields change significantly, and have been very volatile in recent times as well.

What is essential when considering the bond yields is not only the yield itself, but the change of the yield since the previous value. With weekly published data, we as traders consider the yield based on the previous rate.

Now, the US10YR’s weekly changes are assumed hanging within the boundaries of 0% and 5%, indicating a high demand for bonds, high and optimistic sentiment to lend money to the US government.

Any increases beyond the 5% could rather be seen as deflationary – demand for bonds are falling, yields are flying upwards!

How do Traders Use US10YR Bonds?

Let’s just say that the US10YR rate would fall compared to the previous week – as a result, the US’s economy is expanding.

The US dollar’s value will probably fall as well, since there will be more money in circulation. We, as traders, get a strong indication to short the US dollar!

On the other hand, let’s just say that the US10YR rate increases compared to the previous week, as an indication for a more deflationary economy.

In that case, there are indications that US dollar’s value could increase – and we, as traders, could long the US dollar!

Should You Buy US10YR Bonds when Interest Rates Are Low?

As we have seen earlier, when interest rates are low, the (high) demand often lowers the yield of bonds as well. In that case, the question is whether buying bonds is worth it.

Instead, with lower interest rates, higher demand for bonds and lower 10-Year Treasury yields, an inflationary economy is indicated – which in turn means, that spending is encouraged.

Other financial activities, besides buying bonds or saving money, in that case could be wiser…


Although it is often undervalued in the context of trading (particularly, retail trading), the 10-Year Treasury yield is important. That is essentially the bottom line of this article.

However, as something that we continue to repeat time after time: as traders, we have to look at an economy as a whole.

By using a systematic framework that considers multiple aspects and distinguishing between different kinds of indicators (leading, coincidental and lagging indicators), we want to make sure that we have covered everything.

Then, what should we do with the Treasury yields?

If the changes compared to the previous week are significantly larger than expected – this can be seen as a deflationary movement. We could long the currency (in this case, the US Dollar).

If the changes compared to previous week are negative, or rather small (less than 5%), this can be seen as an inflationary movement. We could short the US Dollar.

Therefore, keep thinking, and keep an eye out on the weekly US Treasury yields changes.

Happy trading and good luck!




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