Did Treasury Debt Markets Anticipate the Persistent Decline in Long-Term Interest Rates?: Working Paper 2017-07
Working Paper
Private-sector forecasters consistently missed the decline in long-term interest rates over the past three decades. Forecasts based on the Treasury yield curve would not have done a better job anticipating the decline in long-term rates.
Private-sector forecasters consistently missed the decline in long-term nominal interest rates over the past three decades, estimating rates that were higher (and, in some cases, much higher) than what actually occurred. This analysis examines whether bond-market participants anticipated with greater accuracy the decline in long-term rates. To explore that issue, CBO compared the accuracy and bias in forecasts of long-term interest rates from the Blue Chip consensus with forecasts based on information derived from the Treasury yield curve as well as several benchmark forecasts and combinations of forecasts. The results indicate that Treasury debt markets did not do a better job than the Blue Chip consensus in forecasting the decline in long-term interest rates over the past three decades. Forecasts based on a random walk model of interest rates were more accurate and less biased than those of the Blue Chip consensus, especially for the most recent subsample period (1998–2012).
