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https://www.federalreserve.gov/Board...20/default.htm
Did anyone read this? Ben goes on to list some possible explanations why there has been a decline in "Far-Forward Rates" (the long term part of long term Treasury bonds..)
1) A fall in macro-economic volatility has occured and "if investors have come to expect this past performance to continue, they might believe that less compensation for risk--and thus a lower term premium--is required to justify holding longer-term bonds.
2) increased intervention in currency markets by a number of governments, particularly in Asia.
(Though he says with regards to this: "However, these observations speak more to the existence of a short-term impact of large purchases and sales--the result of limits to liquidity in the very short run--than to the perhaps more important question of whether those transactions have a lasting effect on yields. On this latter issue, clear evidence is harder to come by." Clearly he is not a fan of this theory)
3) "Changes in the management of and accounting for pension funds are a third possible source of a declining term premium .."
Not yet, but "bond investors might be attaching significant odds to scenarios in which pension funds tilt the composition of their portfolios toward such assets substantially over time"
4) Fourth and finally, as investors' demands for long-duration securities may have increased over the past few years, the supply of such securities seems not to have kept pace.
He also ads his pet theory:
"Given the global nature of the decline in yields, an explanation less centered on the United States might be required. About a year ago, I offered the thesis that a "global saving glut"--an excess, at historically normal real interest rates, of desired global saving over desired global investment--was contributing to the decline in interest rates.7"
He certainly doesn't seem concerned the flattened yield curve to be an issue.
Love to hear some more thoughts on this. Feel free to chime in if you think I missed something critical.
Did anyone read this? Ben goes on to list some possible explanations why there has been a decline in "Far-Forward Rates" (the long term part of long term Treasury bonds..)
1) A fall in macro-economic volatility has occured and "if investors have come to expect this past performance to continue, they might believe that less compensation for risk--and thus a lower term premium--is required to justify holding longer-term bonds.
2) increased intervention in currency markets by a number of governments, particularly in Asia.
(Though he says with regards to this: "However, these observations speak more to the existence of a short-term impact of large purchases and sales--the result of limits to liquidity in the very short run--than to the perhaps more important question of whether those transactions have a lasting effect on yields. On this latter issue, clear evidence is harder to come by." Clearly he is not a fan of this theory)
3) "Changes in the management of and accounting for pension funds are a third possible source of a declining term premium .."
Not yet, but "bond investors might be attaching significant odds to scenarios in which pension funds tilt the composition of their portfolios toward such assets substantially over time"
4) Fourth and finally, as investors' demands for long-duration securities may have increased over the past few years, the supply of such securities seems not to have kept pace.
He also ads his pet theory:
"Given the global nature of the decline in yields, an explanation less centered on the United States might be required. About a year ago, I offered the thesis that a "global saving glut"--an excess, at historically normal real interest rates, of desired global saving over desired global investment--was contributing to the decline in interest rates.7"
He certainly doesn't seem concerned the flattened yield curve to be an issue.
Love to hear some more thoughts on this. Feel free to chime in if you think I missed something critical.
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