Figure 7. 10Year Treasury Yield & 10Year Treasury Term Premium Chart Source: Macromicro)
In the bond market, the 10-year US Treasury yield has remained between 4.154.5 percent since March, but this stability has masked the rising “term premium,ˮ which is the extra return investors demand for holding longer-term bonds because of uncertainty over future monetary policy (see charts above). The current term premium is estimated at 0.65 percent, a notable shift from much of the past decade when it was negative. Investors appear to be pricing in the risk that the Federal Reserve may raise rates again if inflation accelerates after tariffs take effect. By late July, the 10-year yield of 4.4 percent reflected an expected federal funds rate of about 3.70 percent plus a 0.75 percent term premium—levels more in line with the higher-rate environment of the 1990s and early 2000s than the post-financial crisis era of low rates.
Figure 8. US Retail Inventories and Total Business Inventories Chart Source: Macromicro)