Factors That Affect U.S. Treasury Yields

$1000 denomination US Savings Bonds
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For over 100 years, 10-year U.S. Treasury notes varied considerably, culminating in a 100-year low in the summer of 2016. In June 2016, the 10-year rate fell below 2 percent to a paltry 1.71 percent. This was a far cry from the exceptional highs of 1982, at 14.59 percent, an over eightfold increase.

From 1990 to the summer of 2016, U.S. 30-year treasury bond yields ranged from a high of 9.03 percent in 1990 to a low of 2.43 percent in June 2016. For comparison purposes, the corresponding 1990 rate for the 10-year note was 8.21 percent, slightly lower than the 30-year bond rate.

In fact, through the historical period from 1916 to 2016, bond yields were never stable for long, rising and falling at the markets' whim. Ultimately, many factors affected U.S. Treasury yields over the 100-year period between 1916 and summer 2016.

Why Interest Rates and Yields Rise and Fall

Although investors traditionally hold bonds in their investment portfolios to counter the reputedly greater volatility of stocks (called hedging), both financial instruments are volatile, differing only in a matter of degree.

A paper issued by the Federal Reserve Bank in San Francisco points out five factors that influence the interest rates of the Treasury's shorter-term T-Bills, but all five contribute at least as much to the offered rates on longer-term Treasury notes and bonds, and all of them also affect yield. The paper, although dealing primarily with short-term T-bills, clearly describes the five factors that affect rates and yields. Keep in mind that the price of a bond and its yield move in opposite directions.


Periods of abnormal financial uncertainty increase demand for financial instruments that are perceived to be especially safe and the U.S. government's debt instruments are universally considered the safest in the world. As a result of increased demand, investors accept lower rates and yields, despite the decrease in year-over-year profit.


Government bonds exist in the first place for the purpose of raising capital that the government may need for government initiatives or payroll or to service debt. When the U.S. government has a federal budget surplus (as it did in the period 1998–2000), it has less need for borrowed money and will issue fewer Treasury notes and bonds. The decrease in the available supply means that the government can offer bonds with lower rates, which is what dragged down the rate in summer 2016.

Economic Conditions

The San Francisco Fed's white paper on bond rates points out that interest rates on bonds usually rise in bull markets and fall in bear markets. That has been refuted, since from the middle of the Great Recession in January 2009, markets saw 10-year Treasury rates at 2.46 percent.

Ten years later in January 2018, the same 10-year Treasury bond yielded the exact same 2.46 percent. This is during a period where, without factoring in dividends, the S&P 500 returned over 220 percent from its 2009 lows.

Monetary Policy

Bonds have more than one government function. In addition to raising money, bonds and their offered interest rates have an influence on the financial markets generally. The Fed doesn’t control long-term rates, but its policy with regard to short-term rates sets the basis for yields on government bonds with longer maturities. 

After the financial crisis of 2007–2008, the Federal Reserve kept interest rates as low as possible in order to make it easier for businesses to borrow money. This lowering of rates suitable for economic growth, combined with extravagant buybacks of government assets, is known as "quantitative easing," and was a policy implemented around the world after the financial crisis.

As of 2018, many countries are looking to eliminate their quantitative easing, or QE, programs as inflation catches up to the broader trend of economic recovery.


Actual inflation (but also inflation expectations in the financial community) tend to raise interest rates and elevate bond yields.

The cause of the elevated yields of the late 1970s and early 1980s was the high inflation of that era, which led U.S. Federal Reserve Chairman Paul Volcker to begin raising short-term interest rates dramatically during the early 1980s.

This resulted in higher rates, and therefore yields, of all Treasury instruments. Keep in mind that in periods of high inflation rates, the real (or after-inflation) yield investors receive is lower than it appears.