Why do bond prices fall when yields rise?

Because a bond’s coupon is fixed. When new bonds are issued at higher rates, older bonds with lower coupons must trade at a discount to offer buyers the same yield.

What is a good 10-year Treasury yield?

There is no fixed good level. Between 2010 and 2021 it mostly sat below 3%. Above 4% to 5% it starts to weigh on stock valuations and mortgages. The direction of change matters more than the level.

Does the Fed set the 10-year yield?

No. The Fed controls the overnight rate directly. The 10-year yield is set by bond buyers and sellers based on expectations of growth, inflation and future Fed policy.

Bond Yields Explained: The 10-Year Treasury and Stocks

Stock market stories mention the 10-year Treasury yield almost as often as the S&P 500. That single number is the benchmark interest rate for the entire economy: mortgages, corporate loans and the value of every stock are measured against it.

Yields confuse newcomers because they move opposite to bond prices. This guide untangles that, then explains what the yield tells you about growth, inflation and the stock market.

What a yield is

A bond pays a fixed coupon. A $1,000 Treasury with a 4% coupon pays $40 a year. If you buy it for $1,000, your yield is 4%. If bond prices fall and you can buy it for $900, the same $40 is now a 4.4% yield. Pay $1,100 and it is 3.6%.

That is the whole trick: because the coupon is fixed, a lower price means a higher yield and vice versa. "Yields rose" and "bonds sold off" describe the same event.

Why the 10-year matters

The US government borrows at every maturity from one month to 30 years. The 10-year note sits in the middle and serves as the reference rate for long-term borrowing. Mortgage rates track it closely.

It is also the "risk-free rate" that investors compare every other asset against. If a Treasury guaranteed by the US government pays 5%, a stock has to promise noticeably more to be worth the risk.

How yields move stocks

A stock is worth the present value of its future profits. Higher yields mean a higher discount rate, which shrinks the value of profits far in the future. That is why growth stocks, whose earnings sit years ahead, fall hardest when yields spike.

Rising yields also compete for money. When cash and bonds pay a decent return, some investors move out of stocks. Falling yields do the reverse and have powered many rallies.

The yield curve

Plot yields against maturity and you get the yield curve. Normally it slopes upward: lenders want more to lock money up for longer. When short-term yields rise above long-term yields, the curve is inverted.

An inverted curve has preceded every US recession of the past 50 years, typically by 12 to 18 months, because it signals that investors expect the Fed to cut rates in a slowdown. It is watched as closely as any economic statistic.

Bond Yields Explained: Why the 10-Year Treasury Moves Stocks