What the 10-year Treasury yield’s 4% milestone means for markets and investors

Monday, March 6, 2023 by Snacks
Watching the yield rise like (Scott Olson/Getty Images)

Watching the yield rise like (Scott Olson/Getty Images)

The name’s Bond… T-Bond. Uncle Sam’s payouts on IOUs are getting fatter: last week the 10-year Treasury yield (basically: the interest rate the US government pays to borrow money) briefly topped 4% for the first time since November. While Treasury yields may sound as enthralling as waiting in line at the DMV, they’re key to understanding stock-market moves.

  • Spill the T-bill: When investors expect rates to go higher, the price of existing bonds falls. If people can get a new bond with a higher interest rate, why would they pay the same price for an old version of the same bond that pays out at a lower rate?
  • US yields soared and stocks fell early last week as investors came to terms with the possibility of Fed rate hikes lasting longer (and going higher) than previously expected.
  • But stocks rebounded after Atlanta Fed President Bostic said he “firmly” supports sticking with quarter-point hikes. And surprise, surprise: the 10-year yield dipped.

Define the relationship… As interest rate (or inflation) expectations rise, yields rise and bonds fall. Historically, rising Treasury yields tend to lead to falling stocks, because they make Treasury securities more attractive when compared to riskier assets (like… stocks). The US gov’t has historically always paid its debt on time, so Treasury securities are considered “safe” investments. Now that the 10-year yield is hovering around 4%, it could be a tipping point for some investors to offload some stocks and buy more bonds.


It’s all about opportunity cost… AKA: what you stand to potentially lose by choosing one option over another. When Treasury yields are low or near zero, there’s little incentive to invest in bonds over stocks. But as potential returns from low-risk investments (like US gov’t bonds) rise, investors demand higher returns from stocks to justify the changed opportunity cost. As yields climbed last month, the S&P 500 lost 2.6%.

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