This note, the third in a series, attempts to identify what drives the different sub-components of bond yields. It builds on the concepts outlined in the first note of the series as well as the estimates and trends covered in the second note. Future instalments in the series will include deep dives into topical factors which could influence these sub-components and present long-term projections for bond yields.

As a reminder, there are four sub-components of bond yields. These are related to investor expectations for real interest rates and inflation as well as premiums charged by investors to account for the risk that actual real interest rates and inflation might differ from these expectations if they buy a longer-term bond rather than a series of shorter-term securities.

Estimates of these sub-components are useful in gauging which could be driving changes in bond yields over time. However, it is not necessarily clear what the precise catalysts for moves in these sub-components might be. Identifying these in the context of US Treasury 10-year bond yields is the purpose of this note.

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