Why Long and Short Interest Rates Fell Out of Step

Since mid-September, the US Federal Reserve has cut benchmark interest rates by 100 basis points. Yet the yield on 30-year Treasury bonds has risen by around the same amount. This divergence between short- and long-term rates is counterintuitive and far from isolated, with UK 30-year yields hitting the highest since 1998 even as the Bank of England eases monetary policy.

The reason: Investors are worried that the inflationary pressures sparked by the pandemic will linger in the global economy for years. And what’s more, governments that spent heavily to stimulate economies during coronavirus lockdowns are still borrowing lots of money.