What Is a 10-Year Treasury Note and How Does It Work?

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Some folks probably look at the size of the federal deficit and wonder to themselves: When the U.S. government borrows trillions of dollars, who’s the lender? Who has that much money lying around, and why would they be willing to lend it to the U.S.?

The answer is that it’s actually a combination of almost everyone. When a country borrows money, it does so by selling bonds, which are loans backed by the tax revenues of that particular nation. In the U.S., these loans take the form of Treasuries — including the 10-year Treasury note — which play an essential (if often overlooked) role in the basic function of government and the economy.

To learn more about 10-year Treasury notes and whether or not you should include them in your investment strategies, continue reading. This guide will cover:

What Is a 10-Year Treasury Note?

When the U.S. government needs to raise more money than it has on hand from tax revenues, it does so by selling bonds. A bond is a type of loan in which the repayment terms are clearly defined ahead of time, making it easier for the government to understand and plan around the cost of interest on these loans.

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Treasuries have three different categories based on how long they last. Here’s a quick rundown:

  • T-bills: Treasuries that mature in a year or less
  • T-notes: Treasuries that mature in five to 10 years
  • T-bonds: Treasuries that take longer than 10 years to mature

One thing to keep in mind is that 10-year Treasury notes are backed by the full faith and credit of the U.S. government, which means they are pretty safe investments. If necessary, the government can just print more money to repay the debt.

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How Do 10-Year Treasury Notes Work?

The basics of a 10-year T-note involve paying the government a single lump sum at the beginning to purchase the bond — $1,000 apiece. The government then pays interest twice a year until the bond matures, at which point the entire sum you borrowed will be returned. The interest rate, known as the “yield,” expresses the annual return on the money you’ve lent.

So, if you purchase one 10-year T-note with a 3% yield, that means you would pay the federal government $1,000 upfront. You would then get a payment of $15 every six months until the bond matures at the end of 10 years, at which point you would get back your $1,000.

Treasuries are sold at auction, with banks and investors around the world competing over bond prices on U.S. debt. This competition helps keep borrowing costs low for the U.S. as the people willing to accept the lowest yields are the ones who will ultimately be able to get their hands on the T-notes. For most people who aren’t major investment bankers, though, you’ll purchase your T-notes through a broker or on the secondary market.

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What Is the Current Yield on the 10-Year Treasury Note?

As with interest rates, 10-year Treasury note yields are fluid and change often. As of early April 2020, the yield on a 10-year T-note was about 0.6%. The yield changes with the dynamics of the economic climate and is used as a benchmark for other interest rates.

For individual buyers, the price and yield of a 10-year Treasury note are determined at the auction. The price may be greater than, less than or equal to the note’s base amount.

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What Are the Advantages and Disadvantages of a 10-Year Treasury Note?

One of the best aspects of a 10-year Treasury note is that its advantages and disadvantages are straightforward.  You don’t need a lot of advanced financial knowledge to decide whether this is an appropriate choice for you and your financial goals. Here’s a quick look:


  • Low risk compared with other types of investments
  • Easy to buy and sell


  • Low yields compared with other investments
  • Unless you sell, you’ll wait a decade to get your original investment back

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Who Is a 10-Year Treasury Note Best For?

On the most basic level, 10-year Treasury notes are best for those seeking two specific financial goals: low risk and high liquidity.

Because 10-year Treasury notes are backed by the U.S. government, you’ll have your cut in the end no matter what happens to the market. Meanwhile, the market for Treasuries is large and extremely active, making it easy to buy or sell Treasury notes in whatever quantities and maturities you want.

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Why Do 10-Year T-Notes Matter So Much?

Although 10-year T-notes are simple bonds, they play a very important role in the global economy. The relative safety of T-notes prompt banks the world over to buy and hold them as capital reserves so they are better insulated against economic shocks. As stated earlier, many different consumer interest rates are set using the yield on the 10-year T-note as a guide.

Here are two main reasons 10-year T-notes are important:

  • They are often a bellwether for the economy as a whole because yield changes over time can give a sense of how optimistic or pessimistic investors are about the direction of the economy.
  • A flat or inverted “yield curve” has preceded every recession in the last 60 years, signaling hard times to come.

Normally, yields on longer-term Treasuries are higher to reflect the increased risk of the longer maturity date. However, when the near-term prospects of the economy seem bleak, more investors will be driven into T-notes before interest rates fall — as they usually do during hard times — and drive down those yields, which “flattens” or even “inverts” the yield curve. When this happens, an economic downturn usually follows.

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