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What is the 10-year Treasury note, and how does it affect your finances?
The 10-year Treasury note is a way to invest money in the U.S. government. You lend money to the government for a decade and earn interest. Seems strange, doesn’t it? You, having a hand in funding the operation of the United States?
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 jump in.
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 return for earning interest on the amount the government borrows. Anyone can buy Treasurys: 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 the bonds is paid every six months until the end of the term, which is called “maturity.” The interest rate of the note you buy is fixed and never changes.
Because Treasury notes are issued and backed by the U.S. government, they are considered among the safest investments available.
How the 10-year Treasury affects mortgage rates
The 10-year Treasury is a reference point for national long-term interest rates, especially mortgage rates. However, home loan interest rates are determined by a variety of market factors, including:
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Overall economic conditions
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Financial markets as a whole
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Inflation
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Interest moves by the Federal Reserve
Yet, mortgage rates and the 10-year Treasury tend to move in unison. If the 10-year Treasury yield moves higher, mortgages typically do, too — but with a margin of separation. Historically, the spread between the two has been between one to two percentage points. More recently, that spread has widened to around two-and-half percentage points.
For example, on Nov. 27, 2024, the 10-year Treasury yield was 4.25%, and the average 30-year mortgage rate was 6.81%.
Learn more: What determines mortgage rates? It's complicated.
Why have Treasury yields risen when the Fed cut interest rates?
Many Treasury investors — and prospective homebuyers — are wondering why Treasury yields and the mortgage rates that track with them have generally risen following the Federal Reserve's recent interest rate cuts.
Analysts say that the Fed's lower rates were already accounted for in the bond market.
"Bond markets were already pricing in an aggressive rate-cutting cycle by the Fed with the expectation that the fed funds rate would be below 3% by next July," LPL Financial strategist Lawrence Gillum said in a recent analysis. "Markets expected the Fed to cut rates eight times before the rate-cutting campaign even started."
So, early rate cuts were already baked into Treasury yields. And because recent economic data continue to outperform, expectations for aggressive future rate cuts by the Fed are being reduced. As a result, Treasury yields and mortgage rates have edged higher.
Dig deeper: When will mortgage rates go down?
What is a Treasury yield?
A Treasury yield is the return you get on your investment. Very simply, it's interest — expressed as a percentage. You lend money to the government; it pays you fixed-rate interest every six months. If you buy a 10-year Treasury with a yield of 3%, you will earn 3% interest annually (and the interest does not compound). That interest payment is also called a coupon.
After 10 years, you are paid back your original investment. For example, you'll receive an interest payment every six months, and at the maturity of a $1,000 10-year Treasury note, you receive the $1,000 face value back — but no more interest payments.
Learn more: CDs vs. Treasury bills — Which should you choose?
10-year Treasury yield chart
You can check the movement of 10-year Treasury yields at Yahoo Finance. The chart allows you to expand the historical data from one day to five years, or click “all” or “max” 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 major can tell you about the "seesaw" effect of prices and yields. Both are considered economic indicators, and they move in opposite directions.
When prices go up, yields come down. Eager investors buying into the Treasury market drive note prices up. As a result, new Treasury buyers receive lower interest payments (yields). When yields fall, it suggests that investors believe inflation will move lower or the economy will slow.
When prices fall, yields move higher. New Treasury note buyers 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.
Learn more: High-yield savings account vs. Treasury bill — Which is right for you?
10-year Treasury note FAQs
What is the difference between Treasury bills, notes, and bonds?
Treasury bills, T-notes, and bonds are the same debt instruments with different maturities. Treasury bills come in maturities from four to 52 weeks. Notes are generally issued in two- to 10-year maturities. Bonds are issued in maturities of either 20 or 30 years.
Is a 10-year Treasury a good investment?
Since Treasurys 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 greater risk of loss, such as ETFs, cryptocurrencies, and the stock market, have a higher possible return. Generally, wise investors use a mix of investments that balance a portfolio's overall risk and return.
How long do I have to hold a 10-year Treasury note?
You can sell a 10-year Treasury note anytime after holding it for a minimum of 45 days, but the full face value of the investment is only guaranteed if you hold it to maturity. Remember, market prices and yields vary daily, so you may sell at a loss if you don't have the note until the end of its term.
Can I buy a 10-year Treasury note?
Yes, you can buy a 10-year Treasury note. Treasurys are sold in digital form (paper Treasurys were phased out in 2011) through TreasuryDirect.gov. You only need a minimum purchase of $100, and you can buy notes in increments of $100 that mature in two, three, five, seven, or 10 years. Federal tax is due on the interest you earn annually, but Treasurys are not charged state or local taxes.
This article was edited by Laura Grace Tarpley.
