First get the numbers laid out clearly: on September 15, the yield on the 30-year U.S. Treasury rose by 5.1 basis points to 5.399%, hitting a new high since 2007. On the same day, the 10-year yield climbed to 5.041%, also the highest since 2007. JPMorgan raised its year-end forecast for the 30-year yield from 5.20% to 5.40%. So rather than saying the market has already “moved above” this level, it’s more like it’s standing right against the 5.40% doorframe.
What’s really worth thinking about isn’t the exact level, but what pushed the long end higher. One decomposition breaks the increase from the start of the year to early September: of the 65 basis points rise in the 10-year nominal yield, 53 basis points came from real yield, while only 12 came from inflation compensation; for the 30-year, out of 44 basis points, 36 came from real yield and 8 from inflation compensation. In both tenors, the contribution from real rates exceeds 80%.
That changes the narrative. It’s not “runaway inflation driving up the long end.” Instead, the market is repricing something: the supply of long-dated government bonds. Federal debt first surpassed $40 trillion in August, and the cycle of paying interest—running deficits—issuing more debt has a self-reinforcing effect, while overseas long-term buying appetite is weakening. When there are fewer buyers and more issuance, the market naturally demands a higher term premium. Since the term premium turned from negative to positive in 2023, this line has been trending upward.
My view: this kind of upward move in yields doesn’t kill risk assets through the “rate-hike” channel; it does so through valuation. A rise in the discount rate first hits long-duration assets—like high-valued technology growth stocks—and also those that don’t generate cash flow, such as $BTC .
And it’s not entirely sourced by monetary policy. Even if the Fed later hits the pause button, as long as the two legs—supply and term premium—are still in place, the long end may not necessarily fall. That’s why it can independently become a source of risk.
Going forward, I’ll watch two signals: whether the term premium shows signs of running out of control, and whether the Treasury’s debt issuance structure becomes even more short-term. Do you think the essence of this long-end rally is an inflation issue or a fiscal one? #U.S.30-year-Treasury-yield-crosses-5.40%
What’s really worth thinking about isn’t the exact level, but what pushed the long end higher. One decomposition breaks the increase from the start of the year to early September: of the 65 basis points rise in the 10-year nominal yield, 53 basis points came from real yield, while only 12 came from inflation compensation; for the 30-year, out of 44 basis points, 36 came from real yield and 8 from inflation compensation. In both tenors, the contribution from real rates exceeds 80%.
That changes the narrative. It’s not “runaway inflation driving up the long end.” Instead, the market is repricing something: the supply of long-dated government bonds. Federal debt first surpassed $40 trillion in August, and the cycle of paying interest—running deficits—issuing more debt has a self-reinforcing effect, while overseas long-term buying appetite is weakening. When there are fewer buyers and more issuance, the market naturally demands a higher term premium. Since the term premium turned from negative to positive in 2023, this line has been trending upward.
My view: this kind of upward move in yields doesn’t kill risk assets through the “rate-hike” channel; it does so through valuation. A rise in the discount rate first hits long-duration assets—like high-valued technology growth stocks—and also those that don’t generate cash flow, such as $BTC .
And it’s not entirely sourced by monetary policy. Even if the Fed later hits the pause button, as long as the two legs—supply and term premium—are still in place, the long end may not necessarily fall. That’s why it can independently become a source of risk.
Going forward, I’ll watch two signals: whether the term premium shows signs of running out of control, and whether the Treasury’s debt issuance structure becomes even more short-term. Do you think the essence of this long-end rally is an inflation issue or a fiscal one? #U.S.30-year-Treasury-yield-crosses-5.40%