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Are Low Yields Abroad Keeping Yields Low in the U.S.?

Todd Bunton

If there was one thing investors generally agreed on at the end of last year, it was that long-term U.S. Treasury yields were going to rise in 2014 as the 800-lb gorilla known as the Federal Reserve tapered its bond buying program.

Well, the taper has occured as expected. But the yield on the 10-year U.S. Treasury is currently hovering around 2.5%, down about 50 basis points since the beginning of the year.

It's doubtful that this has been caused by widespread recession fears or some other "flight to safety" trade sparked by troubles here in the United States. Domestic economic data has been solid overall this year.

And it's tough to blame geopolitical tensions since yields fell significantly before these problems bubbled up.

Perhaps one of the biggest reasons for the low Treasury yields in America has been low government bond yields abroad. Compared to yields in some other countries, U.S. Treasuries look comparatively attractive:

Think about it: if you were an institutional investor that was mandated to invest in government bonds, does the U.S. really look that expensive compared to your alternatives?

Do you agree that low government bond yields abroad have kept rates low in the U.S.? If so, do you expect this to continue even after the Fed finally ends its QE program altogether?

Chime in below!

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