Why is sovereign rate a reference? I would like to know why we always focus on 10 years sovereign rates when we talk about interest rates ?
Let me clarify. I'm reading a paper from the Bank of England that emphasizes the fact that since the 80's the natural interest rate is falling. And to illustrate it they show us that 10 years sovereign rates are falling in USA and Europe. But why did they choose these sovereign bond as a proxy for the natural rate ? I mean, the natural rate is influenced by structural forces (demographic, productivity and so on..) while sovereign rate depends on other things (central bank policies, risk etc..).
Sovereign rates in developed countries represent the credit risk-free curve. What maturity on the curve you want to choose is an analytical choice.
The natural rate is in reference to a risk-free curve, and so should align with the sovereign curve. Also,  “Natural rate” is somewhat dated at this point, the preference is to use a more neutral term like r*.