Unless you are living a blissfully unplugged life, you’ve likely seen recent headlines announcing a rise in bond yields and the national debt, which recently crossed 4.79% (see second chart below) for the 10-year Treasury and $40 trillion, respectively. While the bond market may seem boring compared to the stock market, its movements send important signals about the economy. What is it trying to tell us this time?
Long-term Treasury yields have climbed to their highest levels since 2007, with the 30-year yield reaching roughly 5.3%,1 while short-term rates have remained steady. Bond prices and yields move in opposite directions, so rising yields indicate a decline in the price of existing bonds. This could be caused by several factors: inflation that has proven stickier than expected, rising national debt requiring new bond issuance, and investors demanding higher compensation for the risk of holding long-term bonds (called the term premium). Recently, the Treasury stepped in to accelerate buybacks of long-term bonds in an attempt to steady yields. Any relief in yields proved short-lived, and the bond market soon resumed pricing in the risks above.
Concerns have bubbled up because rising long-term yields affect the economy (and people) by influencing mortgage rates, auto loans, and borrowing costs for businesses. They also increase borrowing costs for the U.S. government, which further widens the deficit, even though interest payments as a percent of total federal spending are still close to the average since 1947, as seen in the chart below.
Source: © Exhibit A, U.S. Bureau of Economic Analysis via FRED | Latest: 2026-04-01
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: This chart divides U.S. federal government current expenditures for interest payments by total U.S. federal government current expenditures, both sourced from the U.S. Bureau of Economic Analysis via FRED and reported quarterly at seasonally adjusted annual rates beginning in 1947. Current expenditures exclude gross investment. Interest is shown on a gross basis and does not subtract interest income received by the federal government, so figures may differ from net interest measures reported elsewhere. The average line reflects all quarterly observations over the period shown, and the labeled value reflects the most recent quarter available. Figures are subject to revision.
While the direction of yields is a signal to watch, the overall level is less alarming when viewed over the longer term. As the next chart illustrates, yields are normalizing to more historically typical levels after more than a decade of unusually low rates following the Global Financial Crisis:
Source: © Exhibit A, FactSet Research Systems Inc. | Latest: 2026-09-03
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment. Definitions & Methodology: The 10-Year Treasury Yield measures the return on U.S. Treasury bonds maturing in ten years, frequently used as a benchmark for long-term interest rates and a gauge of economic growth expectations. The 2-Year Treasury Yield measures the return on U.S. Treasury bonds maturing in two years, often used as an indicator of short-term interest rates and market expectations for economic conditions. The chart shows the path of both the 2-year and 10-year treasury yields since 1988.
As for the U.S. national debt, $40T isn’t that different from $39T (relatively speaking), but crossing a nice, round number makes for a clickable headline. The bigger story isn’t the number itself, but the trajectory. Persistent annual deficits mean the Treasury has to keep issuing new debt just to refinance old debt and fund ongoing spending, and that steady, growing supply of bonds is a factor behind the higher yields we’re seeing. After roughly a decade in which investors were paid very little extra to hold long-term government debt, the term premium is normalizing as foreign demand softens and the Fed steps back from being a large buyer. Reducing the debt over time would require some combination of higher tax revenue, lower spending, or faster GDP growth. While $40T as a headline is more symbolic than significant on its own, the underlying dynamic it points to is worth understanding. Time will tell, but there is not much the average person can do about it. Instead, we continue to control what we can, including our own investment allocations.
The dynamics at play in bond markets help to inform our portfolio designs. In fixed income, we seek to maintain an average duration (a measure of interest-rate sensitivity) that is shorter than the overall bond market, which may cushion the impact of further yield increases compared with longer-dated bond exposure. We also believe in the benefits of diversification across sectors, maintaining allocations to government, corporate, foreign, and mortgage-backed bonds to prevent concentration in any single area of the bond market. High-quality bonds may help provide stability and ballast, while modest allocations to higher-yielding sectors can add diversification and income. Finally, an allocation to inflation-protected bonds (Treasury Inflation-Protected Securities) provides a hedge against rising or sticky inflation. This structure is designed to let portfolios capture higher income while limiting sensitivity to further rate increases.
Our portfolio designs were created to weather dynamic and variable market and economic environments, including the one we’re currently experiencing. Target allocations may change and actual client portfolios may differ based on each client’s objectives and circumstances. As always, we will keep an eye on unfolding events and continue to rebalance portfolios as necessary. If you have questions regarding your specific financial plan or circumstances, please reach out to your Modera advisor.
1 https://www.forbes.com/advisor/investing/treasury-rates/
The 10-Year Treasury Yield measures the return on U.S. Treasury bonds maturing in ten years, frequently used as a benchmark for long-term interest rates and a gauge of economic growth expectations. The 2-Year Treasury Yield measures the return on U.S. Treasury bonds maturing in two years, often used as an indicator of short-term interest rates and market expectations for economic conditions.
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