What’s Causing Low Bond Yields?
Global risk is behind the bond market’s downfall more than anything happening in the US, and that’s why long-term interest rates are out of sync with the economy.
According to the Federal Reserve Bank of New York’s Treasury term premium estimates, the 10-year Treasury yield wouldn’t have fallen from 2.27% at the start of the year to 1.39% today if it weren't for global economic turmoil and Brexit, the Wall Street Journal reports.
Another factor is the fallen term premium, which is down to 0.71% points, almost as much as the 10-year Treasury. The term premium tries to replicate the extra cash investors could have made by investing it into a series of short-term securities instead of long-term bonds. That means bond yields measure investor demand instead of the economy, and global economic unrest along with Brexit has certainly impacted investor demand. [WSJ]