Treasury yield

The return implied by what a government security costs today and what it will pay between now and its maturity. The measure usually quoted is the yield to maturity: the single discount rate at which the present value of the remaining coupons and the redemption amount equals the current market price. Because the future payments are fixed by the contract, only the price can move, so the price and the yield are two expressions of one number and always travel in opposite directions.

The yields quoted in commentary are the most recently issued security at each maturity, which the market calls the on the run issue and which trades more actively than older ones of similar maturity. Taken across maturities together, they form the yield curve, whose shape is watched closely because it summarises what the market expects of policy rates and inflation over each horizon. The ten year yield in particular functions as a reference rate far beyond its own market, since it is the discount rate against which other long dated assets are conventionally valued.

Several things are commonly misread. A yield is not an interest rate set by anybody: the central bank sets a very short rate, and everything further out is priced by the market, which is why a longer yield can fall on the day a policy rate rises. A nominal yield is not a real return either, since expected inflation is embedded in it and the inflation protected securities are the market's separate estimate of that component. And the security is only default free in the currency it is issued in, which says nothing about what its price will do: a long dated bond held to a rising yield can lose a great deal of value before maturity, and how much is governed by its duration.