Treasury Yield History
FAQ: What Drives Short-Term vs. Long-Term Yields Differently?
Not all maturities move for the same reasons. The yield curve can be thought of in two distinct segments driven by different forces:
- Short end (1 month – 2 year): Dominated by Federal Reserve policy. When the Fed raises or cuts the federal funds rate, short-term Treasury yields move almost immediately in lockstep. A sharp move in the 3-month or 2-year yield is almost always a signal about what the market expects the Fed to do next.
- Long end (10 year – 30 year): Driven primarily by inflation expectations and long-run growth outlook. If the market believes inflation will be elevated for years to come, long-term yields rise to compensate investors for that erosion of purchasing power. The Fed can influence this end indirectly (through quantitative easing/tightening) but cannot control it directly.
- Middle (3 year – 7 year): A blend of both — sensitive to both near-term Fed expectations and medium-run growth forecasts. Often where the most complex curve dynamics play out during transitions between hiking and cutting cycles.
This is why the same economic event (say, a hot inflation print) can spike the 2-year by 20 basis points while moving the 30-year only 5 — or not at all.
FAQ: Why Do Bond Prices Move Opposite to Yields?
This is one of the most important and counterintuitive concepts in fixed income. When you buy a Treasury bond, it pays a fixed coupon (interest rate) set at the time of issuance. If you pay $1,000 for a bond paying $40/year, your yield is 4%.
Now suppose interest rates rise and new bonds are issued paying $50/year. Your old bond still only pays $40. To sell it, you'd have to lower the price so that the buyer gets a competitive yield on what they pay. At roughly $800, a $40 coupon becomes a 5% yield — competitive again. The price fell because the yield rose.
The reverse is equally true: when rates fall, existing bonds paying higher coupons become more valuable, so their prices rise. This is why:
- Rising yields = falling bond prices (bad for existing bondholders)
- Falling yields = rising bond prices (good for existing bondholders)
Longer-maturity bonds are more sensitive to this effect (higher duration) — a 1% rise in rates hurts a 30-year bond far more than a 2-year note.