Treasury Secretary Janet Yellen says the rise in long-term yields is due to the surprising strength of the U.S. economy.
“Largely I think it’s a reflection of the resilience that people are seeing in the U.S. economy, that we are not having a recession, that consumer spending and demand continue to be strong, and that the economy is showing tremendous robustness and that suggests that interest rates are likely to stay higher for longer,” said Yellen in an interview with Bloomberg Television on Thursday.
She said it was possible that long-term yields may come down, for the same demographic reasons that saw long-term yields fall from the 1980s to 2020. “They’re still there, they’re still in force. So I think it’s perfectly possible that we will see longer-term yields come down, but nobody really knows for sure,” she said.
The yield on the 10-year Treasury
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has been dancing around the 5% mark of late, for the first time in 16 years, though on Thursday it fell 11 basis points. Data released Thursday showed the U.S. economy grew at a surprisingly strong 4.9% annualized rate in the third quarter, though it was flattered by inventories and trade.
When Federal Reserve Chair Jerome Powell was asked why long-term bond yields have risen, his answer reflected a number of reasons. He did say resilience of the economy is one possible explanation, but also heightened focus on fiscal deficits, quantitative tightening, and rising term premiums. (His explanation’s at the 19-minute mark.)
Also read: Yellen said she doesn’t see signs of a recession after GDP report
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