Treasury Secretary Janet Yellen says surging bond yields are due to the strong economy, not the growing deficit

• Treasury chief Janet Yellen said the jump in bond yields is not tied to the growing budget deficit.
• Yields on the 10-year Treasury recently touched 5%, the highest since before the 2008 financial crisis.

Treasury Secretary Janet Yellen doesn't see a clear line tying the recent surge in long-term bond yields to the US government's growing fiscal deficit.

In Thursday comments at a Bloomberg event in Washington, DC, Yellen said the historic sell-off in the Treasury market — which sent benchmark bond yields to their highest levels since pre-2008 financial crisis — aren't happening in a vacuum.

"We're seeing yields go up in most advanced countries," Yellen said, noting that the jump instead is "largely a reflection of the resilience people are seeing in the economy."

Her comments followed the release of real gross domestic product data that showed the American economy grew at a 4.9% annualized rate in the third quarter. That beat the roughly 2% seen in the prior two quarters, and marked the fastest growth since 2021.

In Yellen's view, it's possible that the US could post a growth rate of 2.5% for 2023, and that may cement the need for the Federal Reserve to keep monetary policy tight.

"The economy is continuing to show tremendous robustness and that suggests that interest rates are likely to stay higher for longer," Yellen said.

She still maintains that the US is on track for a soft-landing.

Meanwhile, year-over-year inflation came in at 3.7% in September, above the Fed's 2% target. On Friday, Personal Consumption Expenditure data came in at 3.7%, the slowest annual rise since 2021.

Some experts have said the recent bond market chaos may have done some of the Fed's tightening job for it. Jerome Powell and other central bankers have shared mixed signals on the path forward as they head into the next policy meeting on October 31.

"Financial conditions have tightened significantly in recent months, and longer-term bond yields have been an important driving factor in this tightening," Powell said on October 19. "We remain attentive to these developments because persistent changes in financial conditions can have implications for the path of monetary policy."