Advertisement

Why have US government bond yields declined?

The global economic recovery maybe picking up speed, but US government bond yields are still falling. Why?

"The surprise of the year has been lower government bond yields," says Economist.com's Buttonwood blog.

The yield on the ten-year US Treasuryhas fallen from 3% at the start of the year to around 2.6% today, as prices have risen. European yields have also fallen. Yet with the global economy gathering strength, most analysts had expected higher yields because stronger growth usually means higher interest rates.

Advertisement - Article continues below

So why have yields retreated again? Unexpectedly weak global growth earlier in the year hasn't helped. Central banks led by the Fed have also made it clear that they intend to keep interest rates low for some time.

But "the simplest and perhaps most compelling" reason for the drop in Treasury yields is that it's down to supply and demand, says Craig Dougherty on Fusionmarketsite.com.

Dan Clifton of Strategas notes that the quantitative-easing (QE) programme under which the Fed prints money to buy bonds is a key prop to the Treasuries market. But even though the Fed has been cutting (tapering') its QE purchases this year, the number of new bonds being issued has been falling even faster.

That's because the US budget deficit is falling, which means the amount the government has to borrow is smaller.As a result, the Fed has ended up buying an even greater share of newly issued Treasuries than it did last year.

In fact, in the six months to June it bought 73%, the biggest percentage since the start of QE. In short, the Fed is a bigger player in the Treasury market than ever before.

Advertisement
Advertisement

Recommended

Visit/glossary/bonds
Glossary

Bonds

A bond is a type of IOU issued by a government, local authority or company to raise money.
19 May 2020
Visit/511283/investors-are-going-bonkers-for-bonds
Bonds

Investors are going bonkers for bonds

In a further sign of the mania gripping the bond market, Germany issued €3.15bn of zero-interest ten-year bonds last week.
18 Jul 2019
Visit/economy/global-economy/601612/the-charts-that-matter-tesla-triumphs
Global Economy

The charts that matter: Tesla triumphs

As Tesla becomes the world's most valuable car-maker by market capitalisation, John Stepek looks at how that affects the charts that matter most to th…
4 Jul 2020
Visit/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation
Inflation

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020

Most Popular

Visit/investments/property/601606/house-prices-crash-uk-property-prices-falling-where-next
Property

House price crash: UK property prices are falling – so where next?

With UK property prices falling for the first time in eight years, are we about to see a house price crash? John Stepek looks at what’s behind the sli…
2 Jul 2020
Visit/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation
Inflation

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020
Visit/investments/investment-strategy/601567/have-small-companies-lost-their-edge
Sponsored

Have small companies lost their edge?

SPONSORED CONTENT – The tectonic plates beneath the modern investing landscape appear to have started moving in new directions
26 Jun 2020