What is a Treasury Rate (Yield)?
Published 01-11-2019

What is a Treasury Rate?

The US Treasury Yield (also referred to as the Treasury Yield Curve Rates, Constant Maturity Treasury Rates, or CMTs) are calculated by the US Department of the Treasury from the daily yield curve. These  rates are essentially the return an investor would receive from the purchase of a US government debt obligation (i.e. a bill, note or bond); it is the interest rate that the government pays to the investors in order to borrow money for different lengths of time (i.e. 30 days, 60 days, 90 days, 6 months for short terms and 1, 2, 3, 5, 7, 10, 20, and 30 years for longer terms).

Current Treasury Rates (04-24-2024)
5 Year Treasury
7 Year Treasury
10 Year Treasury

What is the Treasury Yield Curve?

The treasury rate curve is plotted on an x and y axis and shows several yield rates across different bond maturities. It shows the relationship between the US bond yield (i.e. rate) and the time to maturity. These market yields are calculated from indicative, bond buyer offerings (not actual sales), which are obtained by the Federal Reserve Bank of New York at or near 3:30 PM each trading day. This method provides a yield for each maturity daily, even if no outstanding security with that exact maturity is being offered on that particular day. Typically the longer the term, the higher the rate (unless the yield curve “inverts”, which can be a sign of an impending recession.

US Treasury debt obligations are considered a “low risk” investment since they are guaranteed by the US government, and therefore have lower rates of return than may other types of investments (i.e. the stock market or other private investments).

Why Are Treasury Yields Important?

Treasury Rates are considered an Index for many lenders, on which they determine the cost of borrowing (i.e. commercial interest rate) by adding a “spread” to the treasury rate or treasury swap. For example, say the 10 year treasury rate is 3.00% and a lender is charging a 2.5% spread on the rate, which would make the borrower’s all-in interest rate 5.5% per year. Keeping track of the treasury rates and swaps is especially important for non-recourse mortgage products such as CMBS, Fannie, or Freddie loans, but also affects other real estate loan products as well.

Typically, the 10 year US Treasury bond is considered one of the benchmarks for the overall health of the US economy. When there is a lot of confidence in the economy and investor sentiment is strong, the treasury bond rates goes up, which can in turn drive up interest rates. When confidence is lacking or investor confidence is lower, then the bond rates will drop, potentially signaling some destabilizing factors in the US economy (all assuming interest rates are not being held artificially low by the Federal Reserve Bank).

What Does a Negative Treasury Yield Mean?

It is possible that volatile market conditions, in conjunction with extremely low interest rates, may result in “negative yields” for some Treasury securities trading in the open market. Negative yields for Treasury securities many times happens due to highly technical factors in Treasury markets related to the cash and repurchase agreement markets, and can potentially be unrelated to the time value of money. It could also be the result of a country that holds a lot of US debt (i.e. China) dumping large amounts of the bonds back into the open market.

Since Treasury yields are used in many statutory and regulatory loan and credit programs in addition to determining interest rates on non-marketable government securities and financial derivative products (i.e. interest rate swaps), establishing a floor of zero more accurately reflects borrowing costs related to various programs.

About the Author

Leanne is a JD/MBA and works as a Managing Director for Commercial Loan Direct, specializing in large balance transactions, portfolio loans, and complex financing structures. When not negotiating the best deals for her clients, you can find Leanne in the yoga studio or snowboarding up in the Rockies.