Treasury Interest Rates

By: EconomyWatch Content   Date: 2 November 2009

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Treasury interest rates are used for a variety of purposes. The 3 year, 5 year, 7 year and 10 year rates are used to determine the rates used by the Treasury to assess the economic climate. The 10 year rate is observed as a clear indicator of fixed mortgage rates. The spread between the 30 day rate and the 10 year rate is frequently analyzed and termed as the Treasury Yield Curve. The all-time high for the treasury interest rate for 10 years was recorded on 9/30/1981 at 15.844% and the all-time low interest rate for the 10 year period was recorded on 12/18/2008 at 2.08%.

In fact, market-based Treasury bond rates propel more people to invest in the US securities. It is a safe and highly liquid investment choice. The US government encourages more Americans to buy savings bonds and other government securities as it helps to fund the country and reduce their national debt.

In exchange, the buyers can earn fixed and fluctuating interest. The US Treasury’s Bureau of Public Debt borrows money from the Americans in exchange of:

·        government securities

·        savings bonds

·        notes through auctions

In essence, when an average American buys savings bonds, he/she loans money to the government equivalent to the bond’s face value itself. For the buyer, this bond is redeemable at varying Treasury interest rates.

Treasury Interest Rates: Contribution of the Yield Curve

A yield curve is a line that plots the interest rates of bonds, at a set point in time. These bonds should have equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, and five-year and 30-year U.S. Treasury debt. This is used as a benchmark for other debts in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in both economic output and growth.

The shape of the yield curve is closely scrutinized because it helps to form an idea of future interest rate, change and the country’s economic activities. The three main types of yield curve shapes are:

·        normal

·        inverted

·        flat

Typically, a normal yield curve is one in which the longer maturity bonds have a higher yield compared to the short-term bonds. This happens due to the risks associated with time. Though the Treasury interest rates can be relatively conservative, they provide a good hedge against inflation. So, they are great short and long-term investment vehicles.


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