# 10-Year U.S. Treasury Note
**Summary:** The 10‑year U.S. Treasury note is a marketable government debt instrument with a ten‑year maturity that pays semiannual coupons and returns principal at par. Its yield functions as a global benchmark for borrowing costs, influencing mortgage rates, corporate bond pricing, and financial market sentiment. This entry explains how 10‑year notes work, the formula for yield and price relationships, a numerical example, practical uses, common pitfalls, comparisons to related securities, and research sources for data and analysis.
## Definition & Key Takeaways
## Why It Matters
## Formula & Variables
## Worked Example
## Practical Use
## Comparisons
## Limits & Misconceptions
## Research Notes
## Definition & Key Takeaways
– A 10‑Year U.S. Treasury note is a marketable U.S. government debt security that matures ten years from its issue date and pays fixed semiannual coupon interest, returning face value at maturity.
– The 10‑year yield is a widely quoted benchmark used to price mortgages, corporate debt, and to signal market expectations for inflation and economic growth.
– Treasury notes are considered very low credit‑risk because they are obligations of the U.S. government; price volatility arises primarily from interest‑rate changes.
– Investors can buy 10‑year notes at Treasury auctions, on the secondary market, or through funds and ETFs; interest is exempt from state and local income taxes but subject to federal tax.
– The note’s market price and yield move inversely: when yields rise, existing note prices fall, and vice versa.
## Why It Matters
The 10‑year Treasury note occupies a central role in financial markets for several reasons. First, its yield is often used as a risk‑free reference rate for long‑term discounting and as an input when pricing other fixed‑income instruments. Second, mortgage rates and many corporate borrowing costs are correlated with movements in the 10‑year yield, so changes can affect housing affordability and corporate investment. Third, the note’s yield captures collective market expectations about inflation, Federal Reserve policy, and economic growth—rising yields generally reflect higher expected inflation or tighter policy, while falling yields suggest looser policy or recession concerns.
For portfolio construction, 10‑year notes provide a balance between duration exposure and yield relative to shorter bills and longer bonds. Because they are actively traded and highly liquid, they are a practical instrument for hedging interest‑rate risk and implementing duration strategies.
## Formula & Variables
Several formulas are useful when analyzing a 10‑year note. The most common are price‑yield relationships and yield calculations.
1) Present value (price) of a coupon bond:
P = \sum_{t=1}^{n} (C / (1 + y/2)^{t}) + (FV / (1 + y/2)^{n})
Where:
– P = market price of the note (currency, e.g., USD)
– C = semiannual coupon payment (USD) = (Coupon rate × FV) / 2
– FV = face (par) value, typically 100 or 1,000 USD
– y = annual yield to maturity (decimal, e.g., 0.04 for 4%)
– n = number of semiannual periods = 10 years × 2 = 20
– Discounting uses y/2 because coupons are semiannual; compounding is semiannual.
2) Yield to maturity (YTM) is the internal rate of return solving the above equation for y given market price P. It is reported as an annualized percentage with semiannual compounding.
3) Current yield (approximate income measure):
Current yield = Annual coupon income / Current price = (Coupon rate × FV) / P
Units and scales: yields are reported in annual percentage points. Price is quoted as percentage of par (e.g., 98.50 = 98.50% of par). Coupon rates are annual percentages applied to par.
## Worked Example
Assume a 10‑year Treasury note has: par value FV = $1,000; coupon rate = 3.00% (annual); market price P = $950. Calculate the current yield and an approximate yield to maturity (YTM) using a simple approximation, then outline the exact YTM approach.
Step 1 — Semiannual coupon payment:
C = (3.00% × $1,000) / 2 = $15 every six months.
Step 2 — Current yield:
Current yield = Annual coupon / Price = ($30 / $950) = 0.0315789 = 3.1579%.
Step 3 — Approximate YTM using a linear approximation (not exact):
Approx YTM ≈ [Annual interest + ( (FV − P) / n_years )] / [ (FV + P) / 2 ]
= [30 + (50 / 10)] / [ (1000 + 950) / 2 ]
= [30 + 5] / [975] = 35 / 975 = 0.03590 = 3.59% (annual).
Step 4 — Exact YTM (conceptual):
Solve P = sum_{t=1}^{20} 15 / (1 + y/2)^{t} + 1000 / (1 + y/2)^{20} for y. This requires a financial calculator or numerical root‑finding (e.g., Excel RATE function). The exact YTM will be close to 3.61% with semiannual compounding for these inputs.
This example shows that current yield and YTM differ: current yield only accounts for coupon income while YTM incorporates capital gain (purchase below par) spread over remaining life.
## Practical Use
Checklist for investors and analysts:
– Determine investment objective: income, capital preservation, duration exposure, or benchmark hedging.
– Decide purchase method: primary auction, dealer, broker, or ETF. Auctions can be competitive or noncompetitive.
– Consider tax treatment: federal taxable, state and local exempt.
– Evaluate duration and interest‑rate sensitivity: 10‑year notes have intermediate duration and will suffer price drops when yields rise.
– Monitor macro drivers: Fed policy signals, inflation reports, Treasury issuance calendar, and economic data.
– Use laddering or funds to manage reinvestment risk.
Common pitfalls:
– Ignoring reinvestment risk: reinvesting semiannual coupons at different rates affects realized return.
– Treating the 10‑year yield as a direct policy rate: it is a market rate influenced by many forces, not a Fed‑set rate.
– Overlooking inflation risk: fixed coupons lose purchasing power if inflation outpaces nominal yield.
## Comparisons
– Treasury bills (T‑bills): Shortest maturities (≤1 year), issued at a discount, no coupons. Prefer T‑bills for short‑term cash parking and minimal interest‑rate sensitivity.
– Treasury notes (1–10 years): Periodic coupons; 10‑year note offers intermediate duration—useful for balancing yield vs. rate risk.
– Treasury bonds: Maturities >10 years (e.g., 20‑ and 30‑year). They carry higher duration and generally higher yields but greater price volatility; prefer bonds for longer‑term yield pickup when willing to accept rate risk.
– Inflation‑Protected Securities (TIPS): Principal adjusts with CPI; choose TIPS to protect real purchasing power when inflation risk is a primary concern.
– Corporate bonds: Higher yields but credit risk. Use corporate debt when seeking yield and accepting credit spread risk.
When to prefer a 10‑year note: want a liquid, benchmark exposure to intermediate‑term rates, a balance of yield and moderate duration, or to hedge fixed‑income indices.
## Limits & Misconceptions
– Not risk‑free in total return terms: while default risk is minimal, 10‑year notes are subject to price volatility from rate changes and to inflation risk. Nominal yield does not guarantee positive real return.
– Yield is not a cost‑of‑capital universal: the 10‑year yield is a benchmark but different projects and assets require different risk premiums and term structures.
– Correlation is not causation: while mortgage rates often track the 10‑year yield, other factors (lender spreads, regulatory conditions) influence actual mortgage pricing.
– Short‑term Fed rates and the 10‑year yield can move in different directions: the former is policy‑driven, the latter reflects market expectations and global capital flows.
## Research Notes
Data sources and methodologies commonly used to analyze the 10‑year note:
– Primary market data: U.S. Department of the Treasury (TreasuryDirect) publishes auction results, offering formats, and historical issuance calendars.
– Market yields and prices: Financial data providers (Bloomberg, Refinitiv, Federal Reserve Economic Data — FRED) provide continuous yield time series and price matrices.
– Volatility and term structure analysis: Use the Treasury yield curve (spot rates, forward rates) and models such as the Nelson‑Siegel or affine term structure models to decompose level, slope, and curvature.
– Economic drivers: Monitor Federal Reserve statements and minutes, CPI/PCE inflation releases, GDP and employment reports, and Treasury supply projections.
Typical methodology: compute yields from trade prices using standard bond mathematics (semiannual compounding), construct zero curves via bootstrapping, and analyze spread relationships against other benchmarks (e.g., swap rates, corporate bond indices).
Educational disclaimer: This article is for informational purposes only and does not constitute investment advice.
### FAQ
### See also
– Treasury bill (T‑bill)
– Treasury bond
– Treasury Inflation‑Protected Securities (TIPS)
– Yield curve
– Yield to maturity