Who Benefits from Higher Yields?

Apollo Chief Economist

When interest rates increase, holders of fixed income get a higher cash flow. The problem is that the Fed and foreigners own 50% of Treasuries outstanding, and foreigners own 28% of IG and HY credit outstanding, so a lot of the additional cash flow created by higher US yields is not boosting US GDP growth.

The bottom line is that higher interest rates are a net negative for the US economy, see also the third chart, which shows the effects on US GDP as a result of raising the Fed funds rate 5%-points using a model similar to the Fed’s FRB/US model of the US economy.

Foreigners and the Fed own 50% of US Treasuries outstanding
Source: FRB, Haver Analytics, Apollo Chief Economist. “Others” include nonfinancial businesses, state and local governments, and federal government retirement funds.
Foreigners own 28% of US IG and HY
Source: FFUNDS, Haver, Apollo Chief Economist
The lagged effects of Fed hikes will continue to drag down growth over the coming 12 months
Source: Bloomberg, Apollo Chief Economist. Note: 500bps monetary policy shock in 3Q23.

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