2026 Global Fixed Income Outlook

Why Are Treasury Yields Rising?

The recent surge in Treasury yields, including a nearly 20-year high for the 30-year Treasury bond, has many investors on edge. Rising yields typically signal higher borrowing costs, inflation concerns and worries about the volume of government debt.

Higher yields also drive down the prices of existing bonds, creating potential total-return challenges for some fixed-income investors.

While all these factors characterize today’s bond market, it’s important to understand why yields have been climbing. It’s also crucial to maintain historical and global perspectives.

How Does Government Debt Affect Treasury Yields?

After decades of unchecked federal spending, the U.S. now faces long-term threats to its fiscal position and its ability to repay its debt. The U.S. Treasury market is finally responding.

The U.S. national debt recently surpassed $40 trillion, exceeding the nation's gross domestic product (GDP) by nearly $8 trillion.¹ This pushed the country’s debt-to-GDP ratio to nearly 126%, the third highest among the world’s major economies, according to the International Monetary Fund.

This massive, record-level debt has put pressure on Treasury yields, particularly long-maturity securities. Rising Treasury yields can ripple through financial markets, triggering higher mortgage and auto loan rates, higher corporate bond yields and higher infrastructure financing costs. Investors worry these factors could slash consumer spending, housing activity, corporate investment and economic growth.

Additionally, as Treasury securities issued several years ago (when interest rates were ultra-low) mature, the government’s interest costs are rising. That’s because refinancing existing debt — and funding new government spending — now costs more. Interest rates have risen notably since the near-0% levels of the pandemic era and the global financial crisis.

Through July 2026, the 10^th month of fiscal 2026, the federal government’s cumulative interest expense totaled $931 billion.² Interest costs now exceed U.S. defense spending and represent the third-largest government expenditure, behind only Social Security and Medicare.³

Nevertheless, today’s interest cost as a percentage of GDP (approximately 3.2%) is only slightly higher than it was in the late 1990s, as Figure 1 illustrates.

Figure 1 | Federal Interest Costs, Treasury Yields on the Rise

^{Data from 12/31/1965 – 12/31/2025. Source: FactSet.}

As additional lower-cost debt matures and the government refinances that debt, federal borrowing costs are likely to continue rising. The Congressional Budget Office projects interest payments may double in 10 years, rising from $1 trillion in 2026 to $2.1 trillion in 2036.⁴

How Do Inflation and Government Debt Affect Global Bond Yields?

It’s important to note that the U.S. isn’t the only country facing higher yields. Across developed markets, similar factors — including elevated inflation and soaring government deficits and debt — are driving global bond yields higher. Figure 2 illustrates this trend.

Figure 2 | Yields Have Been Rising Across Developed Markets

^{Data from 1/1/2010 – 8/31/2026. Source: FactSet.}

Additionally, we believe hyperscalers (large tech companies that operate massive global networks of data centers), debt issuance and artificial intelligence (AI)-related capital spending are reshaping the global investment backdrop. Spending on data centers, power infrastructure and AI capacity is driving robust demand — and competition — for longer-duration capital. This dynamic is further pressuring the long end of the Treasury yield curve.

These factors help explain why long-maturity rates have moved more than short-maturity rates. Additionally, in recent years, the world has been undergoing a regime change, from a savings glut to a savings shortage. This transition is contributing to the global rise in rates.

Are Rising Term Premia Only a U.S. Phenomenon?

For many years, anchored inflation and central banks’ quantitative easing and predictable policy reactions largely suppressed longer-maturity yields. But market dynamics have shifted, triggering a rise in the term premium. This refers to the extra compensation investors demand for holding longer-maturity bonds rather than continually rolling over short-maturity securities.

Across developed markets, bond investors are demanding higher compensation amid inflation volatility, fiscal uncertainty and supply risk. That suggests real yields may remain higher than what investors have been accustomed to since the global financial crisis.

Although the U.S. 10-year term premium has been rising since the pandemic, it remains well within the range observed over the past three decades. To the surprise of many investors, the U.S. term premium has been lower than the term premia for government bonds in Japan, Germany, and the U.K.

In our view, this suggests that market expectations for Fed rate hikes may be the main factor driving U.S. rates higher. Additionally, global dynamics indicate that the market views the U.S. fiscal backdrop as less worrisome than the fiscal situations in other countries.

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^{¹$32.5 trillion, annualized as of the second quarter of 2026
²Peter G. Peterson Foundation, “Interest Costs on the National Debt,” July 2026.
³Peter G. Peterson Foundation, “Interest Costs on the National Debt,” July 2026.
⁴Ibid.}