Chart: The fed funds rate vs. 10-year Treasuries

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Looking to benchmark rates for clues about the economy? Understand the differences between the fed funds rate and 10-year Treasury yields.

Line chart showing changes in the Fed Funds Rate and 10-Year Treasury Yields from 1982 to 2022. While the 10-year Treasury Yield typically moves in the same general direction as the Fed Funds Rate over time, the shorter-term ups and downs are often different.

 

  • The federal funds rate (FFR) is the Fed’s primary monetary policy tool and reflects the rate banks charge on overnight loans to other banks. Because it’s a very short-term rate, the FFR has the most direct impact on other short-term interest rates across the economy.

 

  • The yield on the 10-year Treasury has many drivers. For example, when economic confidence is high, demand for safe-haven assets (like Treasuries) falls. This pushes prices lower and yields higher. Yields are also influenced by uncertainty related to future inflation, growth and geopolitical risk. The 10-year Treasury yield may impact other longer term rates in the economy such as fixed-rate mortgages and corporate borrowing costs.

 

  • Understanding these differences is helpful for investors who look to the yield curve for signals about the economy and fixed-income markets. 

 

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