Why have far-forward nominal Treasury rates increased so much in the past few years? Old risks reemerge in an era of Fed credibility

Increases in far-forward nominal interest rates in recent years have been remarkable. For example, the increase in the 9- to 10-year forward Treasury rate over the past five years is the largest since its extraordinary ramp-ups in the late 1970s and early 1980s (Figure 1). The increase in far-forward rates is consequential for the economy because higher forward rates mean higher long-term Treasury yields, which boosts the current cost of long-term credit to households and businesses. Indeed, more than 80 percent of the variation in annual changes in the 10-year Treasury yield over the past 50 years can be explained with a simple regression of the 10-year yield on changes in the 9-to-10 year forward rate.