Abstract Using four decades of data, this exploratory empirical study adopts a loanable funds model to investigate the impact of the federal budget deficit in the U.S. on the Ex Ante real interest rate yield on ten-year Treasury notes. For the 40- year period 1973-2012,
empirical estimation using quarterly data reveals that the Ex Ante real interest rate yield on ten-year U.S. Treasury notes was an increasing function of the Ex Ante real interest rate yield on Moody's Aaa-rated corporate bonds, the Ex Ante real interest rate yield on
three-month Treasury bills, and the increase in per capita real GDP, while being a decreasing function of net capital inflows (as a percent of GDP) and the monetary base (as a percent of GDP). In addition, it is found that the federal budget deficit (as a percent of GDP) exercised a positive
and statistically significant impact on the Ex Ante real interest rate yield on ten-year Treasury notes, a finding consistent in principle with a number of prior studies of various interest rate measures during shorter and earlier time periods. A robustness test using the Ex Ante
real seven-year Treasury note yield and annual data supports these findings.