Introduction to 10-Year Treasury Yield
The 10-year Treasury yield has experienced dramatic fluctuations over the years, ranging from a peak of 15.68% in October 1981 to a historic low of 0.55% in August 2020. As of December 2025, the weekly average stood at 4.16%. This article explores the historical trends of the 10-year Treasury yield, its relationship with key economic indicators like the Fed Funds Rate (FFR), inflation, and the S&P 500.
Fighting Inflation vs. Stimulating Recovery
The 10-year Treasury yield has been influenced by the Fed’s efforts to combat inflation and stimulate economic recovery. In the early 1980s, Federal Reserve Chairman Paul Volcker pushed the FFR to a historic high of 20.06% to curb runaway inflation. This aggressive tightening of monetary policy led to a significant economic slowdown, but ultimately brought inflation under control. In contrast, the FFR was driven to near-zero levels in the aftermath of the 2008 financial crisis and again during the 2020 pandemic to stimulate borrowing, investment, and economic recovery.
The Recent Surge and Policy Response
The period of ultra-low rates was followed by inflation reaching its highest levels since the stagflation crisis. In response, the Fed began raising rates to fight inflation, with the FFR increasing to its highest level in over 20 years from May 2022 to August 2023. The 10-year yield moved in similar fashion, tracking the sharp rise in the FFR. However, the Fed then held its rate steady for just over a year as inflation cooled, before implementing three consecutive rate cuts in 2024. Despite these rate moves, inflation remained sticky, and the 10-year yield moved in the opposite direction.
Treasuries vs. Equities
The relationship between the 10-year yield and the S&P 500 is complex. Generally, equities and treasuries tend to move in opposite directions, but during inflationary periods, they can move in tandem. Adjusting the data for inflation using the Consumer Price Index (CPI) reveals the severe impact of stagflation on real equity values. The FFR line offers valuable insights into the Federal Reserve’s monetary policy, showing how the Fed has used rates to control inflation, accelerate growth, and apply the brakes when needed.
Historical Context
Examining the FFR’s historical extremes, from the 20.06% peak in 1981 to the 0.04% trough in 2020, underscores the Federal Reserve’s capacity to implement dramatic policy shifts in response to prevailing economic conditions. The Fed’s efforts to stimulate the economy have had mixed results, but the S&P 500 has demonstrated resilience and achieved record highs even during periods of high interest rates.
Conclusion
In conclusion, the 10-year Treasury yield is a complex and influential economic indicator that is closely tied to the Fed’s monetary policy and inflation. Understanding its historical trends and relationship with key economic indicators like the FFR and S&P 500 can provide valuable insights into the state of the economy. As the Fed continues to navigate the challenges of inflation and economic growth, the 10-year Treasury yield will remain an important indicator to watch. For those interested in investing in Treasuries, ETFs like VBIL, VGLT, and VGIT offer a range of options.
