What Is the Treasury Rate?

What Is the Treasury Rate?
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The Treasury rate, or Treasury yield, refers to the current interest rate or coupon rate that investors earn on debt securities issued by the U.S. Treasury. The government borrows money by issuing Treasury bills, notes and bonds that you can purchase. According to FINRA, Federal Reserve (Fed) rate changes and underlying economic factors influence the Treasury rate. Understanding this rate is important as it’s a key benchmark and indicator for investors and economists, and also influences the rate you pay on other debts.

Background on Treasury Debts

Treasury debt is available in a range of maturities and sold through auctions on the U.S. government’s website called TreasuryDirect. You can also find them sold by other investors on the secondary market.

Treasury bills, or T-bills, are issued with maturities up to ​one year.​ Treasury notes have maturities between ​two and 10 years,​ and Treasury bonds are issued with ​20- or 30-year​ maturities.

TreasuryDirect explains that Treasury bills are usually sold discounted, so investors earn interest by having the bills mature to their face value. Treasury notes and bonds provide interest payments every ​six months​.

Understanding the Treasury Yield

U.S. Treasury securities are the safest among debt investments, notes TreasuryDirect. The interest rate paid on Treasuries sets the benchmark as the zero risk rate due to the security of Treasury debt. All other rates are also compared to Treasury rates to indicate relative security or risk.

For example, bonds of a certain credit rating will be evaluated on their spread above the comparable Treasury bond. For instance, AA bonds might be 1 percent above the Treasury rate, while the single-A bond yield could be 1.5 percent higher. These differences relate to the higher risk associated with lower credit ratings for non-Treasury bonds.

Various factors influence the Treasury rate. U.S. Bank explains that, at least for short-term Treasury rates, Fed funds rate hikes or cuts tend to have the same direct effect, though long-term rates tend to be higher. On the other hand, high inflation can make fixed-income products like Treasuries less appealing and necessitate higher rates, while a lack of investor confidence in the market could result in higher short-term Treasury rates than long-term rates.

Finding Current Treasury Rates

There is a wide range of Treasury rates since Treasury securities have maturity dates ranging from ​30 days to 30 years​. So if you're looking at a Treasury rate to compare to other investments, it is important to use the rate for the correct short-term or long-term maturity. News commentary about the Treasury rate will include a specified maturity such as the one-year Treasury rate or 10-year Treasury note rate.

The graphic representation of the different Treasury rates based on maturity is called the Treasury yield curve. The yield curve shows Treasury rates for all maturities and the relationship between rate and maturity for Treasury debt securities. The U.S. Treasury has an online tool showing the current daily yield curve rates for any maturity up to 30 years. You can also filter by time period or switch to see other data such as the daily Treasury bill rates or long-term rates.

When exploring Treasuries on the TreasuryDirect website, you’ll also see a link on the specific investment’s page that you can click to see details on how pricing and interest work. Note that your actual yield will depend on whether you bought the Treasury at par or at a discount or premium through the auction.

Why the Treasury Rate Matters

Monitoring the Treasury rate is important since it also affects rates for other types of investments and loans. In addition, the rate can indicate potential warning signals for the economy.

According to the Consumer Financial Protection Bureau, the one-year Treasury rate is the index rate for many adjustable rate mortgages (ARMs), while the St. Louis Fed shows that 30-year fixed mortgage rates are closely aligned with the 10-year Treasury yield. As these rates change, so do the rates you pay on mortgages. In addition, the 10-year Treasury note is often used as a base rate for corporate bonds, while the 30-year Treasury bond rate is a general indicator for long-term interest rates.

The St. Louis Fed explains that falling Treasury rates could indicate that a recession is coming, as was the case in early 2020 during the pandemic. The difference in yields for short- versus long-term Treasuries also provides some insight into how investors feel about the economy. For example, when there’s a fear about rates falling in the short term, there may be an inverted Treasury yield curve.