Financial and macroeconomic implications of the rise in very long-term yields

The rise in very long-term yields over the past year has steepened the slopes between 30-year and ten-year yields in several advanced economies, including the euro area as a whole. This box explores the implications of this steepening for financial markets and intermediaries and also considers the broader macroeconomic outcomes. While higher very long-term yields are expected to have only a limited effect on government funding costs, the yield curve steepening is translating into higher rates on mortgages with long fixation periods. However, financial conditions indices that summarise asset prices with macroeconomic relevance remain essentially unaffected by the inclusion of very long-term maturities. In addition, empirical estimates suggest that the steepening of the long-end yield curve is having only a modest effect on euro area inflation and real GDP, with the impact being significantly smaller than that of changes in short-term rates. Overall, the findings indicate that while the steepening is affecting funding costs and financial intermediaries, its implications for broader financial conditions and macroeconomic dynamics remain contained. JEL Classification: E43, E44, E52