The renewed plunge in the yield of 10-year US Treasuries over the past month cannot be attributed to a reassessment of investors’ expectations for the path of the federal funds rate, according to the estimates of some Fed staff. On the contrary, the 10-year “risk-neutral” component, which captures these expectations, is estimated to have risen. Instead, the decline in the yield is estimated to have been due to a drop of almost 50bp in the term premium, which captures the influence of all other factors.
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