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Bond Yield, 10 Year Treasury Bonds
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Bond Yield, 10 Year Treasury Bonds
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Connections
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Connections to Key Topics with Additional Resources
| Topic | Connections and Additional Resources |
| Scarcity, Choice, and Opportunity Cost |
Since the U.S. government is considered a risk-free borrower, the Treasury bond yield serves as a benchmark risk-free interest rate. Investors in the stock market can consider the risk-free return offered on Treasury bonds as an opportunity cost when investing in stocks. Since the return on stocks (dividends plus capital gain) is subject to unforeseen fluctuations, the return on stock market investments must equal the risk-free interest rate plus a risk premium to compensate investors for accepting the higher-risk investment. Review other EconData for this subject, or visit additional resources: |
| Supply and Demand |
The forces of supply and demand operate in the (resale) bond market to efficiently adjust bond prices so that bond yield equals the prevailing interest rate. For example, if a Treasury bond pays 5 percent interest, but prevailing interest rates rise to 10 percent, then the demand for the Treasury bond will decline, since it generates a substandard return on investment, causing the price of the bond to fall. The equilibrium price for the bond occurs when the bond yield equals the prevailing interest rate. Review other EconData for this subject, or visit additional resources: |
| Monetary Policy |
The Federal Reserve System uses sales or buybacks of Treasury bonds as one of the ways in which it can control the money supply. For example, the Fed can expand the money supply by purchasing bonds, which places new money in the hands of those who sold the bonds to the Fed. Monetary policy determines prevailing interest rates in the money market by increasing or decreasing the supply of money, and thus the pace of economic growth. Review other EconData for this subject, or visit additional resources: |
| International Finance | With
the increasing globalization of finance, many foreign investors look to
the U.S. as a safe haven for investment. U.S. Treasury Bonds are perceived
to be one of the safest investments available anywhere in the world, and
are therefore included in many foreign investment portfolios. The attractiveness
of U.S. securities assures a steady demand for dollars in world currency
markets, and an important source of funds for financing the national debt.
IF US interest rates fall relative to those of other industrialized countries,
it may become more difficult to attract foreign financial investment.
Review other EconData for this subject, or visit additional resources: |
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