The US Treasury yield is the effective annual interest rate that the US government pays on one of its debt obligations, expressed as a percentage. It is the annual return investors can expect from holding a US government security with a given maturity. Treasury yields are inversely related to Treasury prices, and each Treasury debt maturity trades at its own yield, an expression of price. The US Treasury publishes the yields of all Treasury maturities daily on its website.
The 10-year Treasury yield, also known as T-notes, describes what 10-year US Treasury notes will pay over 10 years if bought today. Treasury notes are sold at auction through a bidding process. The 10-year Treasury yield is frequently in the news, as its used as a barometer or proxy for economic factors, including investor sentiment and mortgage rates.
The yield on a Treasury note or bond is determined by several factors, including the coupon rate, face value, purchase price, and years to maturity. If a Treasury note or bond is purchased at a discount to face value, the yield will be higher than the coupon rate, while if it is purchased at a premium, the yield will be lower than the coupon rate. The formula for calculating the Treasury yield on notes and bonds held to maturity is:
$$Treasury Yield = [C + ((FV - PP) / T)] รท [(FV + PP)/2]$$
where C = coupon rate, FV = face value, PP = purchase price, and T = years to maturity.
In summary, the US Treasury yield is the interest rate that the US government pays to borrow money for varying periods of time, and it is an important economic indicator that affects interest rates for consumers and businesses.
