Last month, I wrote that Treasury Secretary Scott Bessent picked a fight with the bond market--the bond market is winning. The 10-year Treasury yield, which was hovering just under 5% then, hit its highest level in over 20 years this week. That sounds scary, so let's dig into the reasons why and add some context.
Inflation
We've been struggling with inflation since the pandemic. It started with supply constraints and fiscal stimulus, then progressed to labor shortages. Tariffs added fuel to the inflation fire, and now the war in Iran has choked oil supplies. Oil prices trickle down into the price of most everything, since most goods have to be transported.
The Fed's blunt tool to deal with inflation is to raise the federal funds rate, so if inflation persists, expect more increases. Many investors were unsure how the new Fed Chair, Kevin Warsh, would act in this role, but after the last rate-setting meeting he said, "The plain fact is that inflation is too high and has been for too long." The committee voted to raise rates and seems likely to continue on that track.
Debt Supply
Over the last ten years, the marketable US national debt has roughly doubled from $14 trillion to $30 trillion. People, especially lawmakers, forget that someone has to buy all those Treasuries, and most investors' need for US Treasuries hasn't doubled over the last ten years. Bond prices move inversely to their yields, so greater supply lowers the price and increases the yield.
Europe is on a similar debt trajectory. Add to that the recent surge in debt issuance to fund data center construction. According to Vanguard, hyperscalers (Alphabet, Amazon, Meta, Microsoft, Oracle) had already issued $132 billion in new debt this year through July. For perspective, they issued just $93 billion in all of 2025. Vanguard also noted that estimates of total AI-related debt issuance for 2026 range from $300 billion to $570 billion.¹
"Normal"
Normal is relative—it’s essentially just what we're used to. And between the Global Financial Crisis (2008) and the pandemic (2020), we got used to an unusually low-inflation, low-interest-rate environment with the US 10-year Treasury yield averaging around 2.4%.
But in the ten years prior, the average was around 4.7%, which, of course, felt normal then. Granted, at over 5.2%, the 10-year has broken out of what Ed Yardeni has dubbed the "old normal." Still, it's nowhere near as abnormal (or enviable) as the 2.7% 30-year fixed mortgages of 2021.
Bottom line
None of this means yields can't go higher. Inflation isn't beaten, and nobody in Washington seems interested in borrowing less. But a 5% Treasury isn't a sign the world is ending. And for anyone who spent fifteen years earning next to nothing on safe money, there's a silver lining: bonds finally pay you to own them. For a diversified, long-term investor, that isn't scary. That's income.
1. https://corporate.vanguard.com/content/corporatesite/us/en/corp/vemo/ai-buildout-comes-to-bond-market.html
Josh Norris is an Investment Advisory Representative of LeFleur Financial. Josh can be reached at josh@lefleurfinancial.com.
Josh Norris, CPA, CFP, CFA is the managing member of LeFleur Financial, a wealth management and tax advisory firm.