Maurice Obstfeld, former Chief Economist of the International Monetary Fund (IMF), has indicated that the recent rise in the 10-year US Treasury yield to its highest level since 2007 is partly due to persistent concerns about the health of the government bond market.
“In terms of short-term trends, the US Treasury market has demonstrated a significant lack of liquidity over the past few years. Therefore, even if there is currently no shortage of liquidity, market expectations of such an event can lead to a liquidity premium increase in the US Treasury market.
Furthermore, we anticipate a substantial fiscal deficit in the United States, which will contribute to an increase in the supply of US Treasury bonds. Downgrades in credit ratings undoubtedly serve as a reminder of this point.”
