Board of Governors of the Federal Reserve System
07/12/2024 | Press release | Distributed by Public on 07/12/2024 13:48
Why Have Long term Treasury Yields Fallen Since the 1980s? Expected Short Rates and Term Premiums in (Quasi ) Real Time
July 2024
Why Have Long-term Treasury Yields Fallen Since the 1980s? Expected Short Rates and Term Premiums in (Quasi-) Real Time
Abstract:
Treasury yields have fallen since the 1980s. Standard decompositions of Treasury yields into expected short-term interest rates and term premiums suggest term premiums account for much of the decline. In an alternative real-time decomposition, term premiums have fluctuated in a stable range, while long-run expected short-term interest rates have fallen. For example, a real-time decomposition of the 10-yr. Treasury yield shows term premiums essentially equal in late 2013 and 2023, while the long-run value of expected short-term interest rates is estimated to have fallen in a manner similar to the FOMC's Summary of Economic Projections and estimates from research on long-run neutral interest rates. These results suggest standard decompositions may overstate the role of term premiums in fluctuations of the yield curve.
Keywords: Term structure model, Recursive and rolling least squares; Real-time data
DOI: https://doi.org/10.17016/FEDS.2024.054
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