10 Year Government Bond Rate

Government bonds are issued by a national government and denominated in a country's specific currency. For example, in the US, treasury securities are in US dollars. Government bonds are often called risk-free bonds, because a government can, if necessary, raise taxes to redeem the bond when it reaches maturity. Risk-free essentially means there is no credit risk. However, inflation risk is still applicable, because the principal repaid at maturity may have less purchasing power than anticipated if the rate of inflation increases higher than expected.

The 10 year bond rate differs depending on when a bond is issued. Bonds (e.g., EE/E bonds) issued in May of 2005 and after earn a fixed rate of interest. To determine the fixed rate, the market yields of the 10-year Treasury note are adjusted by the value of components that are unique to savings bonds, including tax deferral options and early redemption. Each May 1st and November 1st the rates for new issues are adjusted, with the new rate applied to all bonds issued in the six months after the adjustment. These bonds accrue monthly interest, which is compounded semiannually, and must be held a minimum of one year before being redeemed.

Interest based on 5-year US Treasury security yields is earned by EE bonds issued May 1997 through April 2005. Government EE bonds have a rate that is 90% of the average yields on 5-year securities for the previous six months. Each May and November annual rates are announced that apply to bonds for those 6 month earning periods. These EE bonds may be redeemed any time after a year.

EE/E bonds issued May 1st of 1995 through April 30, 1997 earn interest according to market yields for United States Treasury securities. These bonds earn a short- and a long-term rate each May and November 1st. The short-term rates apply to the first five years, and equal 85% of the 3-month averages of 6-month Treasury Security yields. The long-term rates apply to bonds from 5 to 17 years, and each long-term rate is 8% of the 6-month average of five-year US Treasury Security yields.