10-Year Treasury Note

U.S. Treasury notes are marketable securities offering a fixed rate of interest and a specific term to maturity. While Treasury notes offer maturities from 2 to 10 years, 10-year Treasury notes are the most commonly held and traded. Due to its duration and its widespread usage, the 10-year Treasury note is often used as a benchmark for government bonds overall and is considered a financial benchmark for future economic performance on a larger scale.

10-year Treasury note rate

The 10-year Treasury note rate is determined by the U.S. Government, and is considered to be a factor of demand. Demand for these low-risk investments increases in unfavorable economic conditions, so as more 10-year Treasury notes are purchased, the interest rate usually falls lower until a state of equilibrium is achieved, where the lower returns on investment are matched by a lowering of demand for these securities. The Treasury note rate of interest is considered a rough indicator of the overall economic conditions prevalent at the time of initial sale. The interest rate on these securities is used to derive the 10-year treasury note yield.  The 10-year Treasury note yield changes daily due to the high level of trading these securities enjoy.

10-year Treasury note mortgage effects

The interest rate on fixed-rate mortgages is closely tied to the 10-year Treasury note rate. Lower interest rates on Treasury notes are reflected in lower mortgage rates. Thus, the 10-year Treasury note forecast offers significant information to mortgage brokers and lenders. Higher interest rates typically result in fewer homes being sold and, by extension, fewer homes being built; this generally reduces supply to the level of lessened demand. This 10-year Treasury note mortgage correlation allows lenders a reliable predictor of future real estate market trends.

Treasury note yield curve and economic predictors

A 10-year Treasury note typically produces higher yields than shorter-term securities, due to the time value of money. Because the money invested in Treasury notes is not available for other uses for an extended duration, a higher interest rate is necessary to attract the initial investment. The difference in return on investment between one-year Treasury notes and 10-year Treasury notes is best illustrated in graphical form through a yield curve.  Typically, you will see sharply higher yields for longer-term investments.

During periods of economic instability, 10-year Treasury notes may not require a higher yield than short-term notes; this market condition creates an inverted yield curve, and is generally a predictor of economic recession. Simply put, when the time value of money is no longer fully factored into yield expectations, the economy is expected to experience a downturn. Investors anticipating such a downturn often prefer to hold on to a guaranteed rate of return on 10-year notes than to risk the market falling still further over the course of a shorter-term investment. Thus, 10-year Treasury notes provide a useful predictor of short-term economic prospects for analysts and investors.

Tim Ord
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Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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