In testimony to Congress almost exactly 30 years ago, Jay Powell produced a chart. At the time an assistant secretary at the Department of the Treasury, Powell showed that as the federal government had increased bond sales almost every year between 1980 and 1990, the yield on 30-year bonds had continued to drop. That chart still hasn’t changed.
The Treasury continues to sell more bonds every year, and the interest it pays on them has continued to fall. Low yields are a victory of practice over theory.
Theory needs to catch up. If we don’t know why yields are low, we don’t know when or how they’ll rise again. That is a particular problem for Powell, who as the current chair of the Federal Reserve’s Board of Governors is now in charge of the world’s single biggest holder and buyer of US debt.