. based on expected earnings for 12 months ahead. source : thomson reuters financial. - 4 source : federal reserve board staff projection. percent, annual rate figure 7 : year - over - year growth of real total high - risk debt - 5 note : total high - risk debt is the sum of speculative - grade and unrated bonds and leveraged loans. nominal outstandings growth is translated into real terms after subtracting the growth rate of the price deflator for nonfinancial business - sector output. disclaimer for s & p data : s & p and its third - party information providers expressly disclaim the accuracy and completeness of the information provided to the board, as well as any errors or omissions arising from the use of such information. further, the information provided herein does not constitute, and should not be used as, advice regarding the suitability of securities for investment purposes or any other type of investment advice. source : mergent corporate fisd daily feed, nominal bonds outstanding, www. mergent. com / mergent - solutions / fixedincome - data ; standard & poor ’ s, leveraged commentary and data ( lcd ). percent figure 8 : greenwood and hanson high - yield share of corporate bond issuance source : robin greenwood and samuel g. hanson ( 2013 ), " issuer quality and corporate bond returns, " review of financial studies, vol. 26 ( june ), pp. 1483 - 1525 ; federal reserve board staff calculations. figure a. 1 : capm beta for the 10 - year nominal treasury security 0. 8 0. 6 0. 4 0. 2 0. 0 - 0. 2 - 0. 4 note : two - year rolling regressions of the weekly excess holding returns to a 10 - year treasury note versus the s & p 500 stock index. capm is capital asset pricing model. source : federal reserve board staff calculations. figure a. 2 : changes in 10 - year german and u. s. yields around ecb meetings y = 0. 7231x + 0. 5061 r² = 0. 4943 change in german yield ( basis points ) - 20 - 15 - 10 - 5 - 5 - 10 - 15 - 20 note : ecb is european central bank. source : federal reserve board staff calculations. change in u. s. yield ( basis points ) percent figure a. 3 : gilchrist - zakrajsek corporate bond spread

order to meet their targets for retirement. and low rates have clearly not produced a boom in corporate investment, although standard accelerator models suggest that investment has largely been consistent with the weak pace of economic growth. nonetheless, there is good reason to think that low rates have provided significant support for demand, and my view is that they have done so. 2 as you can see in slide 1, we are now close to meeting our dual mandate - - a reasonable summary statistic for the effects of policy. while growth has been frustratingly slow, employment gains have been solid. this is a reasonably good outcome considering the scope of the crisis and the relatively poorer performance of other major advanced economies. other factors are holding down rates there are also many factors other than monetary policy that are holding down long - term interest rates. long - term nominal and real rates have been declining for over 30 years. the next slide decomposes long - term nominal yields into expected future short - term real rates, expected future inflation, and a term premium. these estimates are based on one of the board ’ s workhorse term structure models. 3 all three components have contributed to the downward trend in long - term nominal yields. the downward trend in nominal term premiums likely reflects both lower inflation risk and the fact that, with inflation expectations anchored, nominal bonds have become an increasingly good hedge against market risk. that has made bonds a more see engen, laubach, and reifschneider ( 2015 ). the most interest rate sensitive sectors of the economy, such as consumer durables and residential investment, have exhibited higher growth than other sectors since the second round of quantitative easing by the federal reserve. and, for example, mian, rao, and sufi ( 2013 ) conclude that the decline in house prices during the recession had a substantial effect on consumption ; by the same argument, if low rates supported house prices, then they would have supported consumer spending as well. see d ’ amico, kim, and wei ( forthcoming ). - 3attractive investment and reduced the term premium. 4 as shown in the next slide, a regression of the 10 - year term premium on measures of 10 - year inflation expectations and a rolling beta of treasury returns with respect to equity returns ( to proxy for the hedging value of bonds ) shows that these two factors can account for a large part of the decline in the term premium. regulations now require many financial institutions to hold more safe, highquality liquid assets,