Banks don’t arbitrarily decide how much interest to charge you for a loan. They raise funds from elsewhere to provide you with that loan in the first place. The funds they raise also come with interest on their end.

This is where 10-year treasuries come in. They represent the safest, baseline interest rate in the economy. If the government (the safest borrower) has to pay 4% to borrow for 10 years… Then a lender isn’t typically going to give you money for less than that.

But why is the 10-year so important compared to the 2-year or the 30-year? When investors buy a 10-year Treasury, they’re locking their money away for a decade. So before they do that, they ask themselves: “What will the world look like over the next 10 years?”

That simple question forces them to think about: - Will inflation stay low or rise again? - Will the economy grow or slow down? - Will the U.S. government remain stable and creditworthy? Their answers to those questions determine the interest rate they demand to lend money for

Most loans last ~10 years anyway. For example: - Car loans ~7 years - Mortgages refinanced ~7-10 years - Long-term business loans refinancing Another big reason why the 10-year treasury matters.

Many believe the Fed directly dictates the 10-year yield. But that’s not true. They only have indirect influence. The Fed only directly controls the cost of very short-term money.

That’s why, when the Fed cuts rates, the 10-year usually correlates, but it doesn’t always. When the 10-year yield drops, it usually means that investors expect weaker growth or lower inflation on the horizon.

This is why Fed rate policy isn’t the holy grail of investing. It’s the 10-year and its response to Fed policy that matters most.

There you have it! Do you follow the 10-year? If you found value in this post, follow me @WOLF_Financial for more, and smash that repost button!

@WOLF_Financial And where are we at right now in terms of cheap money?