Sep 11, 2026 · 10 min · 5 segments
In this episode, we discuss why long-term government bond yields have climbed to multidecade highs in the U.S. and abroad. We look at the term premium, the U.S. Fiscal Trajectory, and what it could…
Now remember that during the lows of the pandemic, for example, the 10-year sat at roughly half a percent.
Recently, though, it's been moving higher, as has the 30-year, and think of it as a steepening of the curve.
And so that begs the question, is what are the drivers of these higher rates? And based on what we see in the drivers, what might that mean in terms of rates falling back down? a move up has a few effects of course it increases the cost of borrowing so it has a tightening effect on the economy for investors putting money to work that's appealing you get basically get a higher yield but for people that have already invested when yields go up prices go down so if you look at some of the indices for the bond market year to date they're basically flat to a little bit negative which means those price declines have sort of eroded the coupon payments from the bonds right And so again, these are all relatively muted numbers, but still I'd say a lot of times people say, hey, rates have gone up and maybe this will happen or that'll happen or rates will come back down.
Where are we? What's driving this? And therefore, when might we see relief? And so to kind of jump into it a little bit, you know, the rates haven't been this high in a while.
In any event, one of the things that I would say is a lot of times when this happens, it relates to inflation or a change in inflation expectations.
And so we can't sort of immediately just look to that and say, well, that's the reason.
We've talked a lot about fiscal trajectory in the U.S. And so that's, we think, one factor.
And, of course, with the deficit spending of roughly $2 trillion a year, no sign at all of a slowdown at this point, which we continue to believe is an issue.
And the cost of our debt, so think of it as the interest payments on the debt, are roughly 19% of federal revenue.
Now, as an aside, but an important aside, when we look at other obligations, so there's a study that's been done by the government where they kind of look at the present value of our obligations that are unfunded for Medicare and Social Security.
Now remember that during the lows of the pandemic, for example, the 10-year sat at roughly half a percent.
Recently, though, it's been moving higher, as has the 30-year, and think of it as a steepening of the curve.
And so that begs the question, is what are the drivers of these higher rates? And based on what we see in the drivers, what might that mean in terms of rates falling back down? a move up has a few effects of course it increases the cost of borrowing so it has a tightening effect on the economy for investors putting money to work that's appealing you get basically get a higher yield but for people that have already invested when yields go up prices go down so if you look at some of the indices for the bond market year to date they're basically flat to a little bit negative which means those price declines have sort of eroded the coupon payments from the bonds right And so again, these are all relatively muted numbers, but still I'd say a lot of times people say, hey, rates have gone up and maybe this will happen or that'll happen or rates will come back down.
Where are we? What's driving this? And therefore, when might we see relief? And so to kind of jump into it a little bit, you know, the rates haven't been this high in a while.
In any event, one of the things that I would say is a lot of times when this happens, it relates to inflation or a change in inflation expectations.
And so we can't sort of immediately just look to that and say, well, that's the reason.
We've talked a lot about fiscal trajectory in the U.S. And so that's, we think, one factor.
And, of course, with the deficit spending of roughly $2 trillion a year, no sign at all of a slowdown at this point, which we continue to believe is an issue.
And the cost of our debt, so think of it as the interest payments on the debt, are roughly 19% of federal revenue.
Now, as an aside, but an important aside, when we look at other obligations, so there's a study that's been done by the government where they kind of look at the present value of our obligations that are unfunded for Medicare and Social Security.
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