The Zhitong Finance App learned that Cleveland Federal Reserve Chairman Hamak said on Friday that the recent rise in US long-term treasury yields is the result of a combination of factors, including strong prospects for US economic growth, continuous expansion in the size of government debt, and rising investors' expectations for further interest rate hikes by the Federal Reserve.
Hamak said at a meeting hosted by the Cleveland Federal Reserve on Friday: “I think there are a number of factors at play. One of them is that recently released economic growth data is quite strong, and the market is expecting this kind of performance to continue.”
At the same time, she pointed out that the market's judgment on the Fed's next policy action is also one of the important reasons driving up long-term US bond yields. Currently, investors are further considering the possibility that the Federal Reserve will continue to raise interest rates.
Federal Reserve officials voted unanimously last week to raise the benchmark interest rate by 25 basis points. Interest rate forecasts announced after the meeting showed that according to the median forecast by officials, the Federal Reserve is expected to raise interest rates again before the end of this year.
In recent days, many Federal Reserve officials have mentioned that the US economy is maintaining growth momentum and that the labor market is still strong, and that these factors may mean that further interest rate increases are still necessary. Market expectations for interest rate hikes have also clearly heated up. According to federal funds futures pricing, investors currently expect the probability that the Federal Reserve will raise interest rates in October to be about 65%.
Hamak said that bond investors are considering what kind of policy response the Federal Reserve may adopt in the face of strong economic data, and what policy adjustments may be needed in the future. In other words, if the economy continues to show resilience and inflationary pressure still exists, expectations that the Federal Reserve will maintain a tighter monetary policy may continue to be reflected in long-term treasury bond yields.
In addition to economic growth and monetary policy, Hamak also listed US government spending and rising debt as important factors affecting long-term returns. Hamack, who worked for Goldman Sachs for about 30 years before joining the Federal Reserve in 2024, said investors have been closely watching the impact of rising government spending and debt.
Notably, she also mentioned that the US government now needs to compete for funding with large-scale artificial intelligence investment projects in the financing market. As AI infrastructure construction expands rapidly, data centers, power, and other related projects need to absorb large amounts of capital. When the government itself also needs to raise large amounts of capital by issuing treasury bonds, competition for capital may intensify, putting upward pressure on long-term interest rates.
Therefore, according to Hamak, higher long-term US bond yields are not simply due to a single factor, but rather a combination of strong economic growth, market expectations for further interest rate hikes, increased government debt, and rising capital demand.
As to why US bond yields have been rising recently, the explanation given by Federal Reserve Chairman Walsh last week is both similar and somewhat different from Hamak. Like Hamack, Walsh believes that stronger economic growth and increasingly fierce competition between capital requirements are important reasons driving higher bond yields.
However, when explaining the other drivers, the two had a different focus. Hamak emphasized investors' expectations for further interest rate hikes by the Federal Reserve, while Walsh did not include monetary policy expectations as the main reason, but instead used geopolitical factors as another important explanation.