The 10-Year US Treasury Yield: Here’s what Australian investors need to know!

For Australian investors, the 10-Year US Treasury Yield can serve as an indicator of market volatility, global borrowing costs, equity valuations, capital allocation decisions…a lot of things but those are the main ones. At its core, US Treasury Yield is an interest rate and a return on US government bonds.

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The history of the US Treasury Yield

Historically, the 10-year Treasury yield has reflected the economic conditions of its era. In the late 1970s and early 1980s, during the inflation crisis that prompted aggressive rate hikes under Federal Reserve Chair Paul Volcker, the 10-year yield climbed above 15 percent. As inflation was brought under control and globalisation expanded, yields entered a multi-decade structural decline. Through the 1990s and 2000s, they trended lower, interrupted by cyclical spikes.

Following the Global Financial Crisis of 2008, yields fell sharply as the Federal Reserve cut policy rates to near zero and implemented quantitative easing. By 2020, during the COVID-19 shock, the 10-year yield briefly fell below 0.6 percent, reflecting extreme demand for safety and massive central bank intervention. From 2022 onward, as inflation surged to multi-decade highs, yields rose rapidly again, climbing above 4 percent as markets repriced long-term inflation and policy expectations.

Why the US 10-Year Treasury Yield is Considered a Safe Haven Asset

The US 10-year is considered safe for several reasons.

First, it is backed by the full faith and credit of the United States government, which issues debt in its own sovereign currency. The US dollar remains the dominant global reserve currency, used in trade invoicing, commodity pricing and central bank reserves. This creates structural demand for US Treasuries from foreign governments, sovereign wealth funds and institutional investors.

Second, the Treasury market is the deepest and most liquid government bond market in the world. Investors can transact in enormous size with minimal bid-ask spreads compared to most other sovereign markets.

Third, in periods of acute stress such as financial crises or geopolitical shocks, capital tends to flow toward highly liquid government securities, pushing prices up and yields down. This “flight to quality” dynamic reinforces the perception of Treasuries as a defensive allocation.

Is it Really?

Calling the US 10-year a safe haven may appear true, but such a declaration requires nuance. Now, yes it is very safe from a credit perspective because default risk is considered negligible.

But it is not risk-free in price terms. Not even gold is completely safe in that regard, which is to say gold does fluctuate and can go down as well as up – even if it rarely moves down right now and if so only briefly. Yields do fluctuate and this creates winners and losers.

When inflation expectations rise or when markets anticipate sustained fiscal deficits and higher issuance, yields can rise significantly, generating capital losses for holders.

The sharp rise in yields in 2022 and 2023 demonstrated that even high-quality government bonds can experience substantial mark-to-market volatility when macro conditions shift. Therefore, it is a safe haven primarily in terms of credit risk and liquidity, not necessarily in terms of short-term price stability.

How do US Treasury Yields Compare to Australian Government Bonds?

Comparing the US 10-year Treasury to Australian government bonds is fascinating – this highlights both similarities and structural differences. Australian 10-year Commonwealth Government Bonds are issued by the Australian Government and are influenced by monetary policy from the Reserve Bank of Australia.

Like US Treasuries, Australian government bonds are considered very low credit risk and are used as a domestic benchmark rate. Australia maintains a strong sovereign credit rating and issues debt in its own currency, the Australian dollar. For Australian investors, Commonwealth bonds serve a similar defensive portfolio role to Treasuries for US investors.

But the key differences lie in scale, currency and global reserve status. The US Treasury market is far larger and more liquid than the Australian government bond market.

The US dollar’s role as the world’s primary reserve currency creates persistent international demand for Treasuries that Australia does not replicate to the same extent. As a result, US Treasuries often serve as a global pricing anchor, while Australian bonds are more influenced by domestic economic conditions and capital flows.

Yield differentials between the two countries reflect differences in growth outlook, inflation expectations and monetary policy settings. At times, Australian 10-year yields trade above US yields, particularly when Australian inflation or cash rates are higher. At other times, the spread narrows or inverts depending on relative economic cycles.

Could Australians Invest in 10-Year US Treasury Yields?

The short answer is yes, although there are several pathways with different implications. One method is direct purchase through an international brokerage account that provides access to US Treasury securities in the secondary market or via auctions.

This approach allows precise maturity selection but requires dealing in US dollars and understanding settlement processes. Currency exposure becomes a significant factor because returns will be affected not only by changes in Treasury yields but also by movements in the AUD/USD exchange rate.

A second and often simpler route is through exchange-traded funds listed on the Australian Securities Exchange that provide exposure to US Treasury bonds. Some ETFs hold US Treasuries directly and may offer currency-hedged and unhedged versions.

A hedged ETF reduces the impact of exchange rate fluctuations, isolating the bond return, while an unhedged version introduces currency risk that can either enhance or detract from returns depending on movements in the Australian dollar.

There are also US-listed Treasury ETFs that Australians can access via international brokerage platforms, again subject to currency considerations and tax implications.

Tax treatment is another important factor. Interest earned on US Treasuries is generally subject to US withholding tax rules, though specific exemptions often apply for non-resident investors in US government securities. Australians must also consider domestic tax obligations on foreign income and capital gains. Consulting a tax professional is advisable before making significant allocations.

With all those things considered, should this be considered?

From a portfolio construction perspective, US 10-year Treasuries can provide diversification benefits for Australian investors.

Because the US bond market is driven by different macro forces and because the US dollar often strengthens during global risk-off periods, unhedged exposure can act as a partial hedge against equity market downturns.

However, this comes with added volatility from currency swings. Hedged exposure reduces that volatility but may diminish some of the crisis-hedging benefits associated with USD strength.

Conclusion

In summary, the US 10-year Treasury yield is one of the foundational reference rates of global finance.

Its history reflects inflation cycles, monetary policy regimes and structural shifts in the world economy. It is widely viewed as a safe haven because of its credit quality, liquidity and the reserve status of the US dollar, though it is not immune to price volatility when inflation and fiscal risks rise.

Compared to Australian government bonds, it operates in a larger and more globally integrated market, often serving as a benchmark for worldwide asset pricing. Australians can invest in it either directly or via ETFs, with currency exposure and tax treatment being the main additional considerations.