Treasury Yields Hit a 20-Year High: Is 5% Really Unusual?
Market Commentary
Treasury Yields Hit a 20-Year High: Is 5% Really Unusual?
Treasury yields are at their highest level in nearly 20 years.
At the time of this Market Commentary recording, the 10-year Treasury yield was approximately 5.22%, its highest level since around June 2007. That puts the benchmark yield at roughly a 20-year high and has understandably generated significant attention.
But looking at the headline number alone may not tell the entire story.
The 10-year Treasury began 2026 slightly above 4.2%, meaning yields have increased by approximately one percentage point this year. That is a significant move, but it remains considerably smaller than what investors experienced in 2022, when the 10-year Treasury yield increased by approximately 2.5 percentage points from a much lower starting point.
According to RFG Advisory Chief Investment Officer Rick Wedell, understanding today’s Treasury yields requires looking beyond recent history and considering the relationship between inflation and interest rates over longer periods.
Interest rates and inflation are closely connected.
During portions of the 1980s, 1990s, and early 2000s, interest rates were generally higher as the Federal Reserve worked to control inflation and keep it near its long-term target.
The environment following the 2008 financial crisis looked very different.
Despite concerns that monetary stimulus would produce significant inflation, inflation remained persistently low for much of the following decade. It frequently ran below the Federal Reserve’s 2% target, even as the economy reached low levels of unemployment.
That low-inflation environment coincided with unusually low interest rates.
For investors who became accustomed to the post-2008 environment, those rates may now feel normal. But viewed across a longer period of economic history, they may have represented an unusually low-rate period rather than the long-term standard.
Today, inflation remains above the Federal Reserve’s 2% target.
If the Fed intends to continue bringing inflation toward that target, interest rates may need to remain higher than investors became accustomed to during much of the previous 10 to 15 years.
From that perspective, the rise in Treasury yields could represent markets adjusting to an environment in which rates are closer to longer-term historical norms.
That distinction matters because recent experience can influence how investors interpret current conditions. After more than a decade of exceptionally low rates, a 10-year Treasury yield above 5% can appear extreme even when viewed differently against a broader historical backdrop.
Several upcoming economic reports could provide additional insight into the direction of monetary policy.
The Personal Consumption Expenditures, or PCE, inflation report is scheduled for this week. PCE is a preferred inflation measure used by the Federal Reserve, and Rick notes that expectations at the time of recording were for inflation to remain somewhat elevated.
An employment report is also expected later in the week. Rick discusses expectations for unemployment to remain in the low-4% range, which would continue to indicate relative strength in the labor market.
Persistent inflation combined with a healthy labor market could give the Federal Reserve room to continue focusing on inflation.
At the time of recording, Rick notes that market expectations were centered on another potential interest-rate increase in October following a September increase.
Geopolitical developments remain another important variable.
The Strait of Hormuz remains closed, and Rick notes that the situation appears likely to continue for the foreseeable future.
Continued disruption in the region could put additional pressure on prices. In turn, higher prices could reinforce inflationary pressures and contribute to the broader higher-interest-rate environment.
For investors, the key may be separating the significance of rising Treasury yields from the idea that current levels are necessarily unprecedented.
Treasury yields are high compared with the recent past. But the economic environment has also changed significantly from the low-inflation period that defined much of the decade following the financial crisis.
Key Takeaways on Treasury Yields
The 10-year Treasury yield was approximately 5.22% at the time of recording, its highest level since roughly 2007.
The 10-year yield has risen approximately one percentage point in 2026, compared with an increase of roughly 2.5 percentage points during 2022.
The unusually low inflation environment following the 2008 financial crisis contributed to a prolonged period of unusually low interest rates.
Inflation remaining above the Federal Reserve’s 2% target helps provide context for today’s higher interest rates.
Upcoming PCE inflation and employment reports could provide additional information about the direction of Federal Reserve policy.
Rick notes that expectations at the time of recording were for another potential Fed rate increase in October following the September increase.
The continued closure of the Strait of Hormuz could contribute to price and inflation pressures.
Despite higher Treasury yields, the S&P 500 was approximately 7,711 and up 12.5% year to date at the time of recording.
Watch the latest Market Commentary with Rick Wedell for additional perspective on Treasury yields, inflation, and Federal Reserve policy.
Treasury Yields Hit a 20-Year High: Is 5% Really Unusual?
Treasury Yields Hit a 20-Year High: Is 5% Really Unusual?
Treasury yields are at their highest level in nearly 20 years.
At the time of this Market Commentary recording, the 10-year Treasury yield was approximately 5.22%, its highest level since around June 2007. That puts the benchmark yield at roughly a 20-year high and has understandably generated significant attention.
But looking at the headline number alone may not tell the entire story.
The 10-year Treasury began 2026 slightly above 4.2%, meaning yields have increased by approximately one percentage point this year. That is a significant move, but it remains considerably smaller than what investors experienced in 2022, when the 10-year Treasury yield increased by approximately 2.5 percentage points from a much lower starting point.
According to RFG Advisory Chief Investment Officer Rick Wedell, understanding today’s Treasury yields requires looking beyond recent history and considering the relationship between inflation and interest rates over longer periods.
Interest rates and inflation are closely connected.
During portions of the 1980s, 1990s, and early 2000s, interest rates were generally higher as the Federal Reserve worked to control inflation and keep it near its long-term target.
The environment following the 2008 financial crisis looked very different.
Despite concerns that monetary stimulus would produce significant inflation, inflation remained persistently low for much of the following decade. It frequently ran below the Federal Reserve’s 2% target, even as the economy reached low levels of unemployment.
That low-inflation environment coincided with unusually low interest rates.
For investors who became accustomed to the post-2008 environment, those rates may now feel normal. But viewed across a longer period of economic history, they may have represented an unusually low-rate period rather than the long-term standard.
Today, inflation remains above the Federal Reserve’s 2% target.
If the Fed intends to continue bringing inflation toward that target, interest rates may need to remain higher than investors became accustomed to during much of the previous 10 to 15 years.
From that perspective, the rise in Treasury yields could represent markets adjusting to an environment in which rates are closer to longer-term historical norms.
That distinction matters because recent experience can influence how investors interpret current conditions. After more than a decade of exceptionally low rates, a 10-year Treasury yield above 5% can appear extreme even when viewed differently against a broader historical backdrop.
Several upcoming economic reports could provide additional insight into the direction of monetary policy.
The Personal Consumption Expenditures, or PCE, inflation report is scheduled for this week. PCE is a preferred inflation measure used by the Federal Reserve, and Rick notes that expectations at the time of recording were for inflation to remain somewhat elevated.
An employment report is also expected later in the week. Rick discusses expectations for unemployment to remain in the low-4% range, which would continue to indicate relative strength in the labor market.
Persistent inflation combined with a healthy labor market could give the Federal Reserve room to continue focusing on inflation.
At the time of recording, Rick notes that market expectations were centered on another potential interest-rate increase in October following a September increase.
Geopolitical developments remain another important variable.
The Strait of Hormuz remains closed, and Rick notes that the situation appears likely to continue for the foreseeable future.
Continued disruption in the region could put additional pressure on prices. In turn, higher prices could reinforce inflationary pressures and contribute to the broader higher-interest-rate environment.
For investors, the key may be separating the significance of rising Treasury yields from the idea that current levels are necessarily unprecedented.
Treasury yields are high compared with the recent past. But the economic environment has also changed significantly from the low-inflation period that defined much of the decade following the financial crisis.
Key Takeaways on Treasury Yields
Watch the latest Market Commentary with Rick Wedell for additional perspective on Treasury yields, inflation, and Federal Reserve policy.