Treasury Yield: A Beginner's Guide

When it comes to understanding Treasury yields, it's all about the money you earn from owning U.S. Treasury securities. These securities – which include bills, notes, bonds, and inflation-protected securities - are sold by the U.S. Department of the Treasury to manage the country's debt. But here's the catch: when demand for these securities is high, yields go down. Yup, it's a bit counterintuitive. Yields and bond values move in opposite directions.

How Treasury Yields Work

Your Treasury yield experience begins with the Department of the Treasury auctioning off these securities at a fixed face value and interest rate. If there's high demand, the highest bidder might pay above the face value, thus lowering the yield. On the flip side, low demand means lower prices and higher yields. The government will only repay the face value plus the stated interest rate. When there's an economic crisis, demand for U.S. Treasurys skyrockets because they're seen as super safe investments.

How They Affect the Economy

As Treasury yields rise (yep, they go up and down), so do interest rates on consumer and business loans. Safe and secure Treasurys offer fixed returns, making them appealing to investors. And if the yields rise, those other riskier bonds need to offer higher returns to attract investors, which in turn pushes up interest rates. As demand falls and yields rise, the U.S. government must up the interest rate to lure in buyers.

How They Affect You

Here's where it gets personal - Treasury yields can impact your fixed-rate mortgage, making it pricier when yields rise. When interest rates go up, buying a home becomes less affordable, slowing down the housing market. And here's a fun fact: watching Treasury yields can actually help you predict the future and foresee potential economic downturns. Keep an eye out for those yield curve inversions – they could signal an upcoming recession.