Rising Bond Yields Driven by More Than Just Rate Hikes
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Bond yields have risen due to multiple factors, not just expectations of more Fed rate hikes. Higher term premiums are playing a role.
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Term premiums compensate investors for risks of holding longer-term debt. They were suppressed for years by Fed bond buying.
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Models show term premiums on 10-year Treasuries are now at highest since 2015, over 1 percentage point higher.
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Swiftly rising term premiums can negatively impact stocks and tighten financial conditions on their own.
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If term premiums stay high, there may be less need for more Fed rate hikes to tighten financial conditions.