27 Oct 2023

Loriana Pelizzon: “Market reacts to larger U.S. bond issuance”

SAFE Professor attributes recent developments in the U.S. bond market to quantity effects

Yields on long-term U.S. government bonds have recently peaked. While the yield on the 10-year U.S. Treasury rose above five percent for the first time since 2007, the yield on the 30-year U.S. Treasury reached 5.18 percent at one point. The increase in the US long-term interest rates is related to the change in maturities and rising of U.S. sovereign debt. Loriana Pelizzon, Director of the Research Department Financial Markets and member of the Management Board at the Leibniz Institute for Financial Research SAFE, explains:

“What we are seeing in the bond markets now is that the quantitative tightening of the long-term U.S. yield curve is now being done by the U.S. Treasury, not just the Fed, by issuing a significant amount of 10- and 15-year bonds, unlike a few months ago when it was mainly treasury bills that were being issued. However, the swap curve and inflation expectations have not changed, so the current move in the bond market is primarily due to a quantity effect, i.e. an increase of the supply of long-term US bonds, rather than expectations about the real economy.”

Scientific Contact

Prof. Loriana Pelizzon, Ph.D.

Deputy Scientific Director, Director Research Department "Financial Markets"