Government Bonds’ Shrinking Appeal Has Cost, New York Fed Says

Core Insights - A key interest rate is rising globally, primarily due to the declining appeal of government bonds for safety and liquidity [3] - The "natural rate of interest" has increased significantly since 2019, rising about one percentage point in the US and other advanced economies [4] - Waning interest in government bonds accounts for up to half of the rise in interest rates, influenced by factors such as increased government debt [5] Interest Rate Dynamics - The post-Covid period has shown a significant rise in both US and global interest rates, contrasting with the previous trend from 1990 to 2019 where demand for safety drove government bond yields down [6] - The concept of the "natural rate of interest," or r-star, is crucial for central bank decisions regarding market interest rates [5] Contributing Factors - Other potential drivers for the rise in interest rates include expectations of AI-driven productivity growth, increasing debt-to-GDP ratios, and higher anticipated military spending [7]