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: Increases in government borrowing have been offset by reduced borrowing by consumers and businesses, resulting in only modest growth in total domestic nonfinancial debt. This has reduced the risk that overall growth in debt may spur sharp increases in interest rates.