10-year Treasury yield

The 10-year Treasury yield is the interest rate the US government pays to borrow money for ten years, and it is the single most closely watched benchmark rate in the entire financial system. It moves daily based on how much investors are willing to pay for the safety and predictability of lending to the US government over that stretch of time.

Because it represents a nearly guaranteed return over a decade, the 10-year Treasury yield is used as a reference point for pricing almost everything else. Mortgage rates track it closely, corporate bonds are priced at a spread above it, and it often serves as the risk-free rate in a stock valuation model, the return an investor gives up by choosing to own a stock instead of simply lending to the government.

When the 10-year Treasury yield rises, future cash flows get discounted more heavily in a valuation model, which tends to hit richly valued growth stocks hardest, since more of their value depends on profits expected far in the future. When it falls, the opposite happens, and richly valued growth stocks tend to benefit the most.

The 10-year Treasury yield also reflects investor expectations for growth and inflation. A rising yield can mean investors expect stronger economic growth ahead, or it can mean they are demanding more compensation for expected inflation, and telling the two apart is part of what makes interpreting a single yield move difficult.