Tokyo's Market Dive May Be Keeping U.S. Interest Rates Aloft

One of the great finance puzzles of the past decade is why long-term interest rates are staying so stubbornly high. Even as short-term rates have plunged to a 29-year low, long-term Treasury bond yields have barely budged. Indeed, they are still above their 1986 lows, and bond rates have been heading up in recent days. Many economists blame the federal government's $350 billion budget deficit for keeping long-term rates in the stratosphere. Others point to investors, badly burned by underestimating inflation in the late 1960s and 1970s, who are unwilling to gamble that the inflation dragon is slain despite little evidence of upward price pressure.

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