The 10-year Treasury note is a loan you make to the U.S. federal government. Investors buy them in an auction held by the U.S. Treasury and the Federal Reserve. The return on this investment is called a yield.
Hardly anyone keeps Treasury bonds for the full term. They are traded daily on the secondary market. As a result, Treasury yields change every day. If demand is strong, yields fall because buyers pay a higher price for the underlying Treasury. Yields rise when demand for Treasuries is weak.
When there is a lot of demand, investors bid at or above the face value. In that case, the yield is low because they will get a lower return on their investment. It's worth it to them, though, because they know their investment is safe. They are willing to accept a low yield in return for lower risk.
When there isn’t much demand, investors bid below face value. The return, or yield, has to be higher to motivate them to buy.
How It Affects You
You can buy Treasury notes on the TreasuryDirect website starting at $100. You can buy them with either competitive or noncompetitive bidding. You can also contact your bank or broker.
The 10-year Treasury note yield guides interest rates on long-term debt such as mortgages. Investors who are willing to accept a little more risk will buy mortgages, but they demand a higher interest rate to compensate for that risk. As a result, other loan rates will always be higher than Treasuries.
As Treasury yields rise, so do mortgage rates. This makes loans more expensive, giving you less money to pay on the house. As a result, high interest rates push down home prices. If that happens for a long enough time, it can cause a recession.
