Figure 14-3: Increases in total domestic nonfinancial debt drive the 10-year Treasury yield
With modest variations, the same cause-and-effect relationship between growth in total domestic nonfinancial debt and the Prime Rate shown in Figure 14-2 holds true here with the 10-year Treasury rate. It is also driven by financial market forces, primarily supply and demand for U.S. government debt.
Current Comment: Dramatic increases in government borrowing in 2010 and after, together with a return to Y/Y growth in borrowing by consumers and corporations, may lead to an upturn in Y/Y growth in Total Domestic Nonfinancial Debt during the next few years. If this occurs, higher interest rates would likely follow by 2012 and 2013.
