Macro
Intermediate3 Min Read
Rates, Bonds and the Yield Curve
The number that moves the stock market most isn't set in the stock market — it's set in bonds.
Most equity investors don't follow the bond market. Yet the single biggest driver of stock prices is formed there: the risk-free rate.
The Inverse Relationship
This is the bond market's most basic and most confusing rule:
When a bond's price rises, its yield falls. When its price falls, its yield rises.
The reason is simple: the interest the bond pays is fixed. Pay more for that fixed stream and your percentage return shrinks.
So "the 10-year yield rose" actually means "the 10-year bond's price fell" — investors are selling bonds.
Why Stocks Care
A company's value today is the sum of its future earnings, discounted back to the present. When the discount rate rises, today's value falls.
The effect is not uniform:
| Company type | When rates rise |
|---|---|
| Growth companies with profits far in the future | Hit hardest |
| Mature companies generating cash today | Hit less |
| Banks | Margins can widen; may react the other way |
| Dividend stocks | Pressured — bonds become a competitor |
The last row is the one people skip: if the 10-year Treasury pays 5%, a utility yielding 3% is suddenly less attractive.
Different Maturities Tell Different Stories
Three Maturities, Three Questions
2yr
What the market thinks the Fed does next
10yr
Long-run growth and inflation expectations
30yr
Very long-run trust; least watched, most meaningful
The 2-year yield is almost pure monetary-policy expectation. It is the market's collective bet on the Fed's next two years, and it reacts faster than the Fed's own statements.
The 10-year yield is the economy's long-term price. Mortgages, corporate loans — much of the economy is indexed to it.
The Yield Curve
Plot every maturity's yield as a curve and you normally get an upward slope: locking money up longer is riskier, so it demands more return.
Real Yield
Subtract inflation from the nominal rate and what remains is the real yield — the number that actually drives asset prices.
Nominal 5% with 4% inflation is a real 1% — money is still cheap. Nominal 3% with 1% inflation is a real 2% — tighter than the first case. The headline number misleads; take the difference.
Where You'll See It on This Site
- The home page's side column shows 2, 5 and 10-year Treasury yields with their daily change.
- The bottom ticker rotates the three maturities under "US Treasury."
- The Markets screen has the full series and the yield curve.