Tick Tock Goes The 10 Year Yield Clock
This chart shows the 10 year yield on US Treasury bonds – arguably the most important chart in financial markets right now. It’s been squeezing into a tighter range for the past year, after a massive run-up post-Covid. When it breaks out of that range, we could see a ripple effect across other investments. It’s calm now, but the range will eventually break.
What is the 10 year Treasury yield?
The 10 year yield is the interest rate the US government pays when it borrows money for ten years via US Treasury bonds. If it’s 4%, for example, you’ll earn $4 per year in interest for every $100 you lend the government.
The yield changes based on supply and demand for 10 year US Treasury bonds. If more investors buy them, bond prices rise, so the yield goes down as a percentage of the price. If they’re selling, bond prices drop, and the yield goes up.
This single number influences how trillions of dollars move around the economy. Mortgage rates, car loans, and business credit all move in line with it. When the 10-year yield goes up, borrowing gets more expensive – for everyone.
Investors also use it as a benchmark. If you can earn a 5% yield from a “risk-free” Treasury bond, you’ll want a bigger return to take risks in stocks or crypto. That’s why a rising 10-year yield can put pressure on other investments. But that’s not what happened in the past five years…
What could happen when it breaks the range?
The 10-year yield has surged since Covid – but that hasn’t made stocks, bitcoin, and other assets go down. In fact, it’s been the opposite: since March 2020, all those assets have gone up big.
That’s because investors have seen rising yields as a sign that the economy was getting stronger. So strong that, despite higher borrowing rates, so-called “risk assets” still went up.
Normally, falling yields might seem bullish – because they lower borrowing costs. But this time, they’d be falling for the wrong reasons.
If yields break down from here, it’s likely because the economy is getting weaker – and because investors are buying “safer” Treasury bonds to lock in a yield. Even if that yield is dropping. And if yields break higher, it’s probably because inflation comes back with a vengeance.
Investors could be caught between an economic rock and a hard place.
The 10 year yield is in a compression pattern right now, and those often break violently. To learn more about compression patterns, grab our free PDF guide below:
