Broker Check

Interest Rates - Explained

| April 11, 2018
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Interest rates influence the supply and demand for credit, a primary catalyst for economic growth.
Among hundreds of interest rates published around the world each day, the two described below are
important for U.S. investors and consumers.


10-Year Treasury Yield
U.S. Treasury securities are widely held by safety-conscious investors around the world, and the yield
on 10-year maturities is a heavily-followed interest rate indicator. While rates on shorter-maturity
Treasuries are influenced mainly by Federal Reserve policies, the 10-year Treasury yield reveals
changes in the global supply-demand balance for high-quality credit. The yield moves inversely to bond
prices, and a rising yield can indicate: 1) an acceleration in economic growth; or 2) declining demand
for Treasuries. A falling yield often shows that investors are fleeing risk, perhaps in anticipation of an
economic downturn.


Prime Rate
The prime rate is a benchmark for U.S. bank lending. The rate is published daily by The Wall Street
Journal and other media to reflect the base interest rate charged by most large U.S. banks on
commercial loans. This rate, in turn, is driven by Federal Reserve interest rate policies.

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