Which Economic Factors Impact Treasury Yields?

Treasury yields are basically the rate investors are charging the U.S. Treasury for borrowing money. These rates vary over different durations, forming the yield curve. Treasury Yields, particularly the 10-year yield, are seen as being reflective of investor sentiment about the economy.

Prices and yields move in opposite directions. When investors are feeling better about the economy, they are less interested in safe-haven Treasurys and are more open to buying riskier investments. As such, the prices of Treasurys dip, and the yields rise. When investors are more wary about the health of the economy and its outlook, they are more interested in buying Treasurys, thus pushing up the prices and causing the yields to decline.

There are a number of economic factors that impact Treasury yields, such as interest rates, inflation, and economic growth. All of these factors tend to influence each other as well.

Key Takeaways

  • U.S. government-backed Treasurys are seen as a safe-haven investment for investors, with Treasury yields seen as an indicator of investor sentiment regarding the economy.
  • Treasury bond prices and Treasury yields move inversely to one another, with falling prices lifting corresponding yields while rising prices lower the yields.
  • If investors are upbeat about the economy, they generally want higher risk, higher reward investments than Treasurys; this tendency drives Treasury prices lower and yields higher.
  • Investors who are wary about the economy might step back a bit from riskier investment and instead pile into government-backed Treasurys, which pushes prices higher and yields lower.
  • Interest rates, inflation, and economic growth are among the biggest so-called macro factors that influence investor perception about the economy and the direction of Treasury yields.

Key Factors That Impact Treasury Yields

Economic Factors That Impact Treasury Yields

Investopedia / Alison Czinkota

Interest Rates

Treasury yields are a source of investor concern all over the globe. Treasury yields are the primary benchmark from which all rates are derived. Treasury notes are considered the safest asset in the world, given the depth and resources of the U.S. government.

When the Federal Reserve lowers its key interest rate, the federal funds rate, it creates additional demand for Treasuries, since they can lock in money at a specific interest rate. This additional demand for Treasuries leads to lower interest rates.

The U.S. Department of the Treasury issues four types of debt to finance the government's spending: Treasury bonds (T-bonds), Treasury bills, Treasury notes, and Treasury Inflation-Protected Securities (TIPS); each have different maturity dates and different coupon payments.


When inflationary pressures emerge, Treasury yields move higher as fixed-income products become less desirable. Additionally, inflationary pressures typically force central banks to raise interest rates to shrink the money supply. In inflationary environments, investors are forced to reach for greater yield to compensate for diminished purchasing power in the future.

Economic Growth

Strong economic growth typically leads to increased aggregate demand, which results in increased inflation if it persists over time. During strong growth periods, there is competition for capital. As a result, investors have a plethora of options to generate high returns.

In turn, Treasury yields must rise for Treasuries to find equilibrium between supply and demand. For example, if the economy is growing at five percent and stocks are yielding seven percent, few will buy Treasuries unless they are yielding more than stocks.

Article Sources
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  1. U.S. Securities and Exchange Commission. "Interest Rate Risk — When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall," Page 1.

  2. U.S. Securities and Exchange Commission. "Treasury Securities."

  3. U.S. Securities and Exchange Commission. "Treasury Securities."

  4. TreasuryDirect. "Treasury Securities & Programs."

  5. International Monetary Fund. "Monetary Policy: Stabilizing Prices and Output."

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