What’s behind the decline in 10-year Treasury yields? (2024)

FAQs

What’s behind the decline in 10-year Treasury yields? ›

The increase in inflation to 5.0% in May from 4.2% in April has pushed the real (inflation-adjusted) yield on 10-year Treasury bonds even lower, to negative 3.5%. The goal of the monetary policy is to facilitate investments by pressuring interest rates lower.

Treasury yields deepen losses after the Fed confirmed expectations of another hold and as Chair Powell stuck to the data-dependency rhetoric while avoiding to indicate another interest rate increase is in the cards.

The 10-year note is undoubtedly a highly significant benchmark for global financial markets. A rising yield indicates investor confidence in the economy but also suggests higher borrowing costs, potentially slowing economic growth. Conversely, a falling yield may signal economic uncertainty.

When the Fed increases the federal funds rate, the price of existing fixed-rate bonds decreases and the yields on new fixed-rate bonds increases. The opposite happens when interest rates go down: existing fixed-rate bond prices go up and new fixed-rate bond yields decline.

10 Year Treasury Rate is at 4.58%, compared to 4.63% the previous market day and 3.38% last year. This is higher than the long term average of 4.25%. The 10 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 10 year.

When the 10-year yield declines and mortgage rates fall, the housing market strengthens, which in turn has a positive impact on economic growth and the economy. The 10-year Treasury yield also impacts the rate at which companies can borrow money.

The Bottom Line. Longer-term Treasury bond yields move in the direction of short-term rates, but the spread between them tends to shrink as rates rise because longer-term bonds are more sensitive to expectations of a future slowing in growth and inflation brought about by the higher short-term rates.

Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.

The yield on the benchmark U.S. 10-year Treasury briefly touched an all-time low of 0.318% in overnight trading, adding another 30 basis points to an unprecedented fall in the key interest rate.

Historically, the 10-year U.S. Treasury yield has been considered a key benchmark for mortgage rates. However, mortgage rates are not actually based on the 10-year U.S. Treasury note (as is commonly believed). Fixed mortgage rates and Treasury yields generally move together.

Why are bonds doing so poorly? ›

Interest rate changes are the primary culprit when bond exchange-traded funds (ETFs) lose value. As interest rates rise, the prices of existing bonds fall, which impacts the value of the ETFs holding these assets.

This time has been different: The 10-year Treasury yield has been hovering in a range above where it was when the Fed last hiked in July 2023. We believe the historical relationship should hold and we expect the 10-year Treasury ultimately to decline modestly from current levels as growth and inflation slow.

Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk.

T-bills have a key advantage over CDs: They're exempt from state income taxes. The same is true with Treasury notes and Treasury bonds. If you live in a state with income taxes, and rates are similar for CDs and T-bills, then it makes sense to go with a T-bill.

Key Takeaways. Interest from Treasury bills (T-bills) is subject to federal income taxes but not state or local taxes.

In turn, rising yields can trigger a short-term drop in the value of your existing bonds. That's because investors will want to buy the bonds that offer a higher yield. As demand drops for the bonds with lower yields, the value of those bonds will likely drop too.

U.S. Treasury yields rose on Thursday after the first-quarter GDP report showed slowing growth and rising consumer prices. The benchmark 10-year Treasury yield climbed 4.8 basis points to 4.702%, while the rate on the 2-year Treasury gained 6.1 basis points to 4.998%.

If the economy grows rapidly and inflation is rising, bond yields tend to follow suit. Bond yields also tend to rise if the Federal Reserve, the nation's central bank, raises the short-term interest rate it controls, the federal funds rate.