Treasury Yields

Think of it this way

It is the price of parking your money depending on how long you leave it. Normally, the longer the term, the more they pay you. When the opposite happens and they offer you more for three months than for ten years, someone expects things to turn ugly soon.

What is Treasury Yields?

The yield on US debt at four maturities, which together draw the most closely watched yield curve on the planet. The 3-MONTH BILL is the safest investment there is and closely tracks what the Fed decides. The 2-YEAR NOTE is the thermometer of expectations: it captures what the market thinks the Fed will do over the next two years, so it moves before the Fed does. The 10-YEAR NOTE is the long-term rate benchmark for the entire world, and mortgages and stock valuations hang on it. The 30-YEAR BOND is bought by pension funds and insurers that need to match very distant payments, and when they demand a higher yield it is usually because of doubts about the public finances in the very long run.

How to read Treasury Yields

Four lines in percent. What matters is not the level of any of them but their ORDER: under normal conditions the long maturity yields more than the short one, because lending for thirty years carries more risk than lending for three months. When that order flips and the short end yields more than the long end, the market is saying it expects rate cuts, and that only happens if it expects trouble. Lag: none; a rate is priced in on the same day.

What Treasury Yields means for the market

The 10-year maturity is the discount rate used to value almost everything: if it rises, stocks that promise distant profits are worth less today, and that hits tech stocks above all. The 3-month sets the floor of risk-free return and competes directly with leaving money in the reverse repo. The 2-year usually turns before the Fed itself, which is why it is used to anticipate its moves.

Where the money flows

An investor hands money to the Treasury today and gets it back at maturity, collecting interest along the way. What changes between the four maturities is how long the money stays out and who the typical buyer is: money market funds at the short end, banks and asset managers in the middle, pension funds and insurers at the long end. What you see moving daily is not that deal but the price at which those investors buy and sell the bonds among themselves.

What to watch in Treasury Yields

Look at the order between the 2-year and the 10-year, which is the comparison that has anticipated every recent recession. But beware of the popular reading: the curve can stay inverted for years without anything happening. What has coincided with real deterioration is rapid DISINVERSION, when the short end plunges because the market is pricing in emergency cuts.

The four maturities of US debt. Together they form the world's benchmark yield curve.