How much does the Fed really ‘control’ the 10-year Treasury yield?
A common perception in financial markets and for economic observers is that the Fed actions, through their rate setting, is the most important determinant of the critically important 10-year treasury yield. The reality is that the Fed certainly controls the short end of the Treasury curve, (the fed funds rate and the treasury bill rates) but the 10-year treasury yield is impacted much more by the ‘term premium’. The 10-year Treasury yield has a much greater impact on markets than the short end of the Treasury curve, and the biggest driver of the 10-year treasury yield is the term premium, a variable outside the Fed’s control and impacted primarily by global factors.