Stimulus news, the unemployment rate, and vaccine rollouts have all been top of mind for investors keeping an eye on bank stocks this past year. While all of these are certainly important for the sector, a lesser-known metric investors should add to their watch list is the 10-year Treasury note and its accompanying yield. The rise in the yield of the 10-year Treasury note is one of the main reasons bank stocks have rallied as of late, and it could continue to fuel bank stocks in 2021.
At its most basic level, the 10-year Treasury note is a bond issued by the U.S. government that matures in 10 years. That’s right, investors in the 10-year Treasury note are essentially lending the government money and getting paid back with interest. Because U.S. Treasury bills are backed by the government, and therefore deemed incredibly safe, the interest paid on them is not a lot, with longer-term Treasury notes paying out higher rates than shorter-duration notes.