Stock Market Gauges: Treasury Yield Rates
Treasury Yield Rates
Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations. Looked at another way, the Treasury yield is the interest rate that the U.S. government pays to borrow money for different lengths of time.
Treasury yields don't just influence how much the government pays to borrow and how much investors earn by investing in this debt, they also influence the interest rates that individuals and businesses pay to borrow money to buy real estate, vehicles, and equipment. Treasury yields also tell us how investors feel about the economy. The higher the yields on 10-, 20- and 30-year Treasuries, the better the economic outlook.
Treasury Yield Curve
A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is also used to predict changes in economic output and growth.
The shape of the yield curve gives an idea of future interest rate changes and economic activity. There are three main types of yield curve shapes: normal, inverted and flat (or humped). A normal yield curve is one in which longer maturity bonds have a higher yield compared to shorter-term bonds due to the risks associated with time. An inverted yield curve is one in which the shorter-term yields are higher than the longer-term yields, which can be a sign of upcoming recession. In a flat or humped yield curve, the shorter- and longer-term yields are very close to each other, which is also a predictor of an economic transition.
On a chart below you can see most recent Treasury Yield Curve and compare it against Treasury Yield Curve as of 1, 3, 6 month and 1 year ago. This dynamic may give you additional clues on how economic is changing over time.