What is a bond yield? How it works, and why the US 10-year is at 5%

A bond yield is the yearly return an investor gets from a bond bought at today’s price and held until it is repaid, written as a percentage. Because a bond’s interest payments are fixed, its price and its yield move in opposite directions: when the price falls, the yield rises. On 23 October 2026 the yield on the 10-year US Treasury note, the world’s benchmark, was 5.00%, up from 4.34% six months earlier.

How does a bond yield work?

A bond is a loan that can be traded. The borrower, a government or a company, promises a fixed payment each year, called the coupon, and the full amount back at the end. Take a 10-year bond of $1,000 that pays a coupon of $40 a year. Bought for $1,000, it yields 4%.

Now suppose interest rates across the market rise, and new 10-year bonds pay 5%. Nobody will pay $1,000 for $40 a year when $50 is on offer. The old bond’s price falls until a buyer earns 5% on it too: to about $923, by our calculation. The buyer gets the same $40 a year plus a $77 gain when the bond is repaid at $1,000, and together that works out at 5% a year. That 5% is the bond’s yield to maturity, the figure markets quote.

The reverse also holds. If rates fall to 3%, the old bond’s price rises above $1,000. That is why bond holders gain when yields fall and lose when they rise.

What is the difference between a coupon and a yield?

The coupon is fixed when the bond is sold and never changes. The yield changes every second the bond trades, because it depends on the price. A simpler measure, the current yield, divides the coupon by the price: $40 on a $923 bond is 4.33%. It leaves out the gain or loss at the end, so for a long bond it can differ a lot from the yield to maturity.

What is the 10-year Treasury yield?

It is the yield on the US government’s 10-year debt, and it sets the tone for borrowing costs around the world. US mortgage rates track it closely, and companies’ borrowing costs are priced as a gap above it. As we reported on 9 October, US mortgage rates reached 7.40%, the highest since 2023.

In September 2026 the 10-year yield closed at 5% or more for the first time since July 2007, by our count from the Federal Reserve’s daily series, which goes back to 1962. It reached 5.31% on 5 October, its highest close since May 2002, against a low of 3.97% on 27 February. Over the long run 5% is not high: the series peaked at 15.84% on 30 September 1981 and bottomed at 0.52% on 4 August 2020.

Why are bond yields rising in 2026?

A yield pays investors for two things: a return above inflation, and cover for the inflation they expect. Treasury also sells bonds whose payments rise with inflation, called TIPS, and their yield shows the first part on its own. On 23 October the 10-year TIPS yield was 2.66%. The gap to the ordinary 10-year yield, called the breakeven inflation rate, was 2.34%: the average inflation over ten years at which the two bonds pay the same.

So of the 5.00%, about 2.66 points are a real return and 2.34 points are cover for inflation. Most of this year’s rise is in the real part. The 10-year real yield was 1.93% at the end of 2025 and 2.64% on 22 October 2026; the breakeven rate went only from 2.25% to 2.34%. Investors want a bigger return above inflation, as the Federal Reserve raised its rate in September, saying “Inflation remains elevated”. A higher policy rate lifts short-term yields directly, and longer ones through what investors expect for the years ahead. As we wrote in September, the bond sell-off is about real yields.

What does the yield curve show?

Plotting the yields of bonds of every length, from one month to 30 years, gives the yield curve. Normally it slopes up, since lenders want more to tie up money for longer. The whole US curve has moved up since April, most of all from two to five years, the part that tracks where investors expect the Fed’s rate to go.

US Treasury yield curve, %

US Treasury yield curve, %. Source: US Treasury, daily par yield curve rates.

Series	3M	6M	1Y	2Y	5Y	10Y	30Y
23 October 2026	4.22	4.30	4.44	4.69	4.82	5.00	5.33
23 April 2026	3.69	3.72	3.70	3.83	3.96	4.34	4.92

Source: US Treasury, daily par yield curve rates.The Macro Notebook

When short yields rise above long ones, the curve is inverted, and that has come before past US recessions. The gap between the 10-year and 2-year yields was negative on 541 trading days between April 2022 and September 2024, and as low as −1.08 points on 3 July 2023. On 23 October 2026 it was +0.31 points: the curve slopes up, with the 2-year at 4.69%.

Why do bond yields differ between countries?

Each government’s yield reflects its own central bank, its own inflation and how much investors trust it to pay. Germany’s 10-year yield was 3.36% on 23 October 2026, by the Bundesbank’s figures, 1.64 points below the US. The European Central Bank’s rates are lower than the Fed’s, and German debt is the euro area’s safe asset. Inside the euro area the gap over Germany, the spread, measures risk: as we reported on 20 October, French yields rose after the riots.

What do higher bond yields mean?

For savers, better returns: a 10-year Treasury bought on 23 October locks in 5% a year for a decade. For borrowers, dearer loans, from mortgages to company debt. For governments, higher interest bills as old debt is refinanced. For shares, stiffer competition, since a safe 5% makes risky assets less attractive. As we wrote on 5 October, bond yields and Black Monday have a long and uneasy history.

The next moves depend on inflation and the Fed, whose next decision is due on 28 October.