Treasury Secretary Janet Yellen believes that the recent increase in long-term yields is a direct result of the unexpected strength of the U.S. economy. In an interview with Bloomberg Television, Yellen stated that the rise in yields reflects the resilience of the economy, highlighting the absence of a recession and the continuous strength in consumer spending and demand. She emphasized that this robustness indicates that interest rates are likely to remain higher for an extended period.
Yellen also acknowledged the possibility of long-term yields decreasing due to demographic factors, similar to what had occurred from the 1980s to 2020. Although the long-term trends are still present, she stated that it is uncertain whether these yields will certainly come down.
The yield on the 10-year Treasury (BX:TMUBMUSD10Y) has recently hovered around the 5% mark, a level not seen in 16 years. However, on Thursday, it experienced an 11 basis point decline. Data released on Thursday demonstrated a surprisingly strong annualized growth rate of 4.9% for the U.S. economy in the third quarter, although this figure was partly influenced by inventories and trade.
When questioned about the rise in long-term bond yields, Federal Reserve Chair Jerome Powell provided a multifaceted explanation. While Powell also mentioned the resilience of the economy as a potential factor, he cited several other reasons including increased focus on fiscal deficits, quantitative tightening, and rising term premiums. Powell’s detailed response can be found at the 19-minute mark.
Also read: Yellen remains optimistic about the absence of a recession after GDP report