Bonds and yields explained: the market behind the stock market
What a bond is, why prices and yields move opposite, the 2-year and 10-year yields traders watch, and why rising yields can hit tech stocks.
Most day traders never trade a bond. But the bond market is often what's really moving their charts. When people say “yields jumped and tech sold off,” they're describing one of the most important links in all of finance. Here's how it works, in plain words.
What a bond is
A bond is a loan. When you buy a U.S. Treasury bond, you're lending money to the U.S. government, which pays you interest and gives your money back at the end. The yield is the return you get for holding it, as a percentage per year.
The one rule: prices and yields move opposite
Say a bond pays $40 a year and costs $1,000: that's a 4% yield. If its price drops to $800, the same $40 is now a 5% yield. So when bond prices fall, yields rise, and when prices rise, yields fall. When the news says “yields are up,” it means bonds are being sold.
The yields traders watch
| Yield | What it reflects | Why it matters |
|---|---|---|
| 2-year Treasury | Where the market thinks the Fed’s rate is heading | Moves fast on Fed news, CPI and jobs reports |
| 10-year Treasury | Long-term growth and inflation expectations | The benchmark for mortgages and for valuing stocks |
| The gap between them | Whether long rates are above short ones | When short yields are above long ones (an “inverted” curve), many read it as a recession warning |
Why yields move stocks
- Competition for money: when a safe Treasury pays more, fewer investors need to take stock-market risk.
- The value of future profits: higher yields shrink what future profits are worth today. Tech and growth companies, whose profits are further in the future, get hit hardest. That's why NQ often falls more than ES when yields jump.
- Borrowing costs: higher yields mean higher rates for companies and households.
This doesn't hold every single day. Sometimes stocks and yields rise together on strong growth news. But when yields move sharply, it's usually worth knowing why. See what moves the markets.
What it means for a day trader
- Keep a 10-year yield chart on one screen. If NQ is falling fast and yields are spiking, you know the move is about rates, not just your chart.
- Expect yields to react first on CPI and jobs days. Index futures often follow. See inflation and CPI.
- Treasury futures exist too (like ZN for the 10-year note), but they're a different market with different behavior. Learn one market at a time.
Next in this series
Next: the dollar, oil and gold. Previous: stock indexes explained.
This article is for education only and isn't financial advice. The example numbers are made up to show the math. Trading futures involves substantial risk of loss.