What Is the Yield Curve? Definition and Example
The yield curve shows what the US government pays to borrow for different lengths of time. Here is why its shape matters, and what inversions have and have not predicted.
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What Are Treasury Yields? Definition and Example
Treasury yields are the interest rates the US government pays to borrow. Here is how they are set, why bond prices fall when yields rise, and what 2022 showed about it.
Key takeaways
- Treasury yields are the annual return investors earn for lending to the US government, from a few weeks (bills) to 30 years (bonds). They move opposite to bond prices.
- The longer the maturity, the more a change in yields moves the price: in 2022, long Treasuries (TLT) fell 31.2% while 1–3 month T-bills (BIL) gained 1.4%, in Exent’s data.
- Yields set the baseline return that stocks and every other asset compete with.
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What are Treasury yields?
The US Treasury borrows by selling bills (up to one year), notes (2 to 10 years) and bonds (20 and 30 years). The yield is the annual return a buyer locks in at today’s price if the security is held to maturity. The Treasury publishes official daily yield curve rates. Plotted by maturity, they form the yield curve.
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Why do bond prices fall when yields rise?
A bond’s coupon is fixed. When new bonds offer more, old ones must fall in price until their yield matches. Illustrative: a 10-year note paying 3% loses roughly 8% of its price if market yields on similar notes jump to 4%. Short-term yields track the federal funds rate closely; long-term yields also reflect expected inflation, growth and the extra return investors demand for tying money up longer.
Example: Treasury funds in the 2022 rate rise
| Fund | Maturity | 2022 return | 10-year return a year |
|---|---|---|---|
| T-bills (BIL) | 1–3 months | +1.4% | +2.1% |
| Short Treasuries (SHY) | 1–3 years | −3.9% | +1.5% |
| Intermediate Treasuries (IEF) | 7–10 years | −15.2% | −0.1% |
| Long Treasuries (TLT) | 20+ years | −31.2% | −3.1% |
Exent’s data, total returns, 10 years to Sep 30, 2026. Longer duration meant a much bigger price hit when yields rose. See the TLT data page.
Why it matters for a self‑directed investor
Yields affect your portfolio three ways: the return on cash and bonds, the discount rate applied to company earnings (rising yields tend to weigh most on high-valuation growth stocks), and borrowing costs across the economy. The guide how to hedge against rising rates and the entry on real yields go further.
Common mistakes
- Confusing a bond fund’s yield with its return. A rising-yield year can wipe out several years of income.
- Assuming Treasuries always cushion stocks. In 2022 both fell together.
- Ignoring maturity. “Treasuries” ranges from near-cash bills to very rate-sensitive 30-year bonds.
Frequently asked questions
They set the risk-free return that stocks compete with and the discount rate for future earnings. Rising yields tend to pressure valuations, especially for growth stocks.
Maturity. Bills mature within a year, notes in 2 to 10 years, and bonds in 20 or 30 years.
Yields rose quickly as inflation surged, so existing bonds fell in price. Long Treasuries (TLT) returned −31.2% that year.
The US Treasury publishes official daily yield curve rates on its website, and most financial data sites show them as well.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.