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I am very new to investing and I am particularly interested in fixed income product. I am just wondering what do people mean when they say US 10 year Government Bond? This term confuses me as I can think of a number of securities that can be referred by this term:

  1. a bond issued today and matures in 10 years
  2. a bond issued 10 years ago and have a 20 year maturity
  3. a bond issued 20 years ago and have a 30 year maturity

Each of this bond will have a different risk characteristic and thus different coupon rate and yield. So when people say US 10 year yield, what are they really talking about?

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    How do they have different risk characteristics if they all have 10 year time to maturity? – quid Jul 15 '18 at 23:15
  • In 1998, the 30yr bond was closer to 6%. That bond, with 10 years to go, has a lower duration, given its higher coupon. The risk characteristic is a bit different. – JTP - Apologise to Monica Jul 16 '18 at 13:11
  • @JoeTaxpayer, sure and that bond would sell at a premium to produce a very similar yield to the 10 year issued last week for the buyer who buys today. The risks differences hinge on your capital outlay differences because in all cases the counterparty is the US Government and all are only concerned with default in the next 10 years. My comment was really more rhetorical for this person to rethink "thus different coupon rate and yield" as yields for the three described will be very close but quoted prices will vary based on the stated coupon rate and to your point, durations will vary a bit. – quid Jul 16 '18 at 17:36
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The 10 year is actually called a note. And a new series is actioned off every month. The quoted 10 year rate reflects the most recent note’s quotes.

A 20 year instrument with 10 years left might have a slightly different YTM, as its duration (which directly affects price movement based on interest rate movement) will be different given the different coupon.

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As @JoeTaxpayer notes the US is a slightly special market since the US commands so much debt they auction so frequently. In other countries the 10Y bond is often defined differently. There is no specific definition or acknowledged terminology.

It could be, for example, the cheapest to deliver (CTD) bond associated with the 10Y bond future, this is quite common against the EUREX bund and Liffe Long Gilt.

It may also be the bond to which 10Y interest rate swaps (IRS) are benchmarked in the interbank market on an asset swap basis. In sterling this does not necessarily align with the CTD on the Long Gilt, nor does it necessarily match the bond whose maturity is necessarily the closest to 10Y from today. These benchmarks tend to change less frequently to promote liquidity of trading rather than technical accuracy to their definition of '10Y'.

However, it can often be any of the bond you outline in your question, there is rarely a concern for issue date unless that implies other features, such as collective-action-clauses (CAC) for European government bonds after a certain date.

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