Neutral interest rate impacts US bonds

The article reveals that the rise in U.S. Treasury bond yields partly reflects investors' expectations of an increase in the neutral interest rate, which is believed to be higher than current data suggests. The neutral interest rate serves as an indirect indicator of whether long-term interest rates are stable or rising, and it is likely higher than current estimates due to factors such as the expansion of artificial intelligence investments and significant government borrowing. An increase in this rate implies that interest rates could remain elevated for a longer period, putting upward pressure on bond yields and complicating the Federal Reserve's efforts to cut rates, especially amid ongoing growth in U.S. debt and excessive investments by the technology sector. Current estimates suggest that the neutral rate could be above 1.65%, reinforcing expectations of higher bond yields across various maturities—particularly affecting long-term bond returns—due to rising debt levels and persistent fiscal deficits.

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