During an interview with Bloomberg on Thursday, Treasury Secretary Janet Yellen stated that the rise in Treasury yields that increases the cost of the U.S. government borrowing money isn’t largely connected to the deficit, but is largely “a reflection of the resilience that people are seeing in the U.S. economy that we’re not having a recession, that consumer spending and demand continue to be strong, the economy is continuing to show tremendous robustness.”
Bloomberg Washington Bureau Chief Peggy Collins asked, “We have seen yields surging over the last few weeks. The 10-year Treasury rose above 5% earlier this week. What’s your view on what is driving that surge in yields, and how much of it is connected to investor’s concerns about the U.S. deficit?”
Yellen responded, “I don’t think much of it is connected to that. This is a global phenomenon in advanced countries. We are seeing yields go up in most advanced countries of the world. And, largely, I think it’s a reflection of the resilience that people are seeing in the U.S. economy that we’re not having a recession, that consumer spending and demand continue to be strong, the economy is continuing to show tremendous robustness. And that suggests that interest rates are likely to stay higher for longer. And so, part of the increase in yields, I think, is simply a reflection of the strength of the economy, the notion that interest rates will be higher for longer. Now, whether or not that’s really true if we look out five or ten years what are interest rates likely to do, honestly, for a very long time we have felt that interest rates over decades had been coming down — real interest rates — and that there were deep structural reasons for that, in part relating to demographics. And those underlying trends, they’re still there, they’re still in force. So, I think it’s perfectly possible that we will see longer-term yields come down, but nobody really knows for sure. But I see the higher yields as, certainly, importantly, a reflection of a stronger economy.”