Friday, 29 May 2009

Three explanations (at least) for higher Treasury yields

It may be good to separate three issues (at least) as to why Treasury yields are going up

1. The fear of inflation
2. The market's realization of higher default risk (even if still slight) in holding US government paper.
3. A risk premium for being denominated in US dollars.

They may be inter-related but they also can act independently of each other.

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