US Record Yields at the Long End

The 30-year US Treasury yield reached 5.197% intraday on May 19/20, 2026, closing at around 5.18% – the highest level since July 2007. The 10-year German Bund stands at around 3.2%, its highest level since May 2011; the 30-year Bund yield is correspondingly close to or above 3.5%. Globally, long-term yields are showing a synchronized rise while short maturities remain relatively stable – the picture of a bear steepening, i.e. a curve steepening driven by rising long-term yields.

Why Are Long-Term Yields So High?

Three drivers are working in combination. First, resurgent inflation due to the Iran conflict (oil >100 USD/barrel) – in the BofA fund manager survey of May 2026, 40% of respondents cite "second-wave inflation" as the greatest tail risk (an event that occurs with low probability but has exceptionally large impact). Second, fiscal concerns: the US credit rating downgraded by Moody's in May 2025 (Aa1) and ballooning deficits are leading to a higher term premium. Third, central bank credibility and geopolitics. Financial analysts like ourselves see both steepening scenarios as plausible: either the labor market weakens short-term rates — or government spending drives long-term rates higher. Notably, 62% of global fund managers (BofA) expect the 30Y yield to rise to 6% – a level not seen since the end of 1999.

Consequences for the Economy, Fiscal and Monetary Policy

Three structural forces explain why long-term yields are rising rather than falling despite weak economic data. First, the return of the term premium: according to the New York Fed model (ACM), the term premium on 10-year Treasuries has turned clearly positive for the first time since 2023. This means: investors are demanding a risk premium for lending money to the US government for 10 or 30 years — they no longer view the risk as "negligible" because debt sustainability, the inflation outlook, and political uncertainty have all deteriorated simultaneously. Second, supply vs. demand: with a CBO deficit of USD 1.9 trillion in FY2026 alone (5.8% of GDP) and Treasury debt of around USD 39 trillion, the US Treasury must issue tens of billions in new debt every week — while foreign buyers (China, Japan) are restrained and the Fed has ended its balance sheet reduction from remaining QT. Third, inflation persistence: the Iran crisis has pushed oil prices above USD 100, and Trump tariffs are acting — according to FOMC minutes — directly on goods price inflation. Goldman Sachs says the long end "remains particularly vulnerable to fiscal and inflation concerns"; J.P. Morgan Asset Management expects a curve steepening throughout the year.

Consequences for the Economy.

The real economy shows the classic picture of a late-cycle phase with nascent slowdown. The ISM Manufacturing PMI of April 52.7 looks robust at first glance, but this is the fourth consecutive month of expansion at a low level — not a boom, but a plateau. The new orders component recovers (54.1), while production (53.4) and especially employment (46.4) are weakening. In Germany, the picture is clearly more negative: the ifo Business Climate Index at 84.4 marks the lowest level since May 2020 (COVID) — that is effectively recession territory. Consequence: the high long-term yields are acting as a procyclical amplifier — they are slowing real estate markets, investment decisions, and refinancings at precisely the moment when the economy needs easing. In our investment strategy, we therefore explicitly include stagflation hedges (gold, energy equities, short duration) as a core element of asset allocation.

Consequences for US Fiscal Policy.

This is where the economic policy time bomb lies. According to the CBO, the US Treasury is already paying USD 628 billion in net interest in just the first seven months of fiscal year 2026. For the full year 2026, the CBO estimates the interest burden at USD 1.0 trillion, rising to USD 2.1 trillion by 2036. Public debt is rising from 101% of GDP today to a projected 120% by 2036 — surpassing the old post-war high (106% in 1946). With a 30Y yield that has moved from 4% to 5.2%, every 100bp shift at the long end costs around USD 80–100 billion more annually in interest charges on a rolling basis — money that is missing from social programs, infrastructure, or defense. This is precisely where the incentive for the Trump administration arises to acquire foreign assets through tariffs, sanctions enforcement, stablecoin Treasury demand, and commodity deals (Ukraine, Greenland).

Consequences for Monetary Policy

The Fed finds itself in the classic stagflation dilemma. It held the policy rate stable in April 2026 for the third consecutive time at 3.5%–3.75% — with a remarkable 8-to-4 vote (four dissenting votes, the most since 1992). This shows how deeply divided FOMC members are. We expect a policy rate cut in the second half of 2026 if labor market data continues to cool, core inflation does not rise further, and the Iran inflation spike dissipates.

Recommendation for Bond Investors

The core question is: short maturity versus long maturity. In the current bear steepening regime (long rates rising faster and more sharply than short rates) with Fed funds at 3.5–3.75% and 30Y Treasury at 5.2%, the obvious reflex to "buy long maturities because yields are historically high" is dangerously simplistic. A 30Y bond at 5.2% loses approximately 15% in price value if yields rise by a further 80bp (toward the 6% BofA consensus tail risk). We therefore recommend a middle positioning: overweight short and medium maturities (1–7 years), neutral to underweight at the long end. Three arguments support this strategy: First, avoiding large losses at the long end of the maturity spectrum. Second, short-dated US Treasuries and Bunds at 3.7–4.2% offer attractive real yields without significant duration risk — the convexity math clearly speaks in favor. Third, optionality: staying short allows for gradual rotation into the middle and longer end when clear signals emerge — significantly weak labor market, broken inflation, Treasury auctions without risk premium.

How Great Is the Risk for Equity Markets?

As long as the 30-year yield remains below 5.5%, equity indices can absorb the environment with elevated volatility but without a bear market. However, if the yield rises toward 6% while expected rate cuts fail to materialize, equity markets would come under greater pressure. Declines of 5 to 10% in the S&P 500 would then be possible, with the DAX tending to be less severely affected. Rate-sensitive sectors such as technology, real estate, and utilities would be particularly burdened, while financials and energy could benefit. In such an environment, an overweighting of these two sectors is recommended. Globally oriented equity portfolios can, thanks to their broad diversification, be held unchanged even in this scenario.

Can Bonds Once Again Become a Competitor to Equities After Years of Absence?

The 10-year US Treasury, at around 4.6%, is already close to its 50-year average of approximately 5.5%. In the US, bonds are thus increasingly becoming a serious alternative to equities again. Their European counterparts — such as 10-year German Bunds — are still lacking around two percentage points to reach their long-term average. Since European equities are also more favorably valued than US equities, they remain the more attractive asset class here.

DISCLAIMER

This document provides a brief overview and was created exclusively for marketing purposes. The information does not constitute financial analysis, investment advice, or a buy or sell recommendation in any way. The information was not prepared in accordance with legal provisions promoting the independence of financial analysis and is not subject to any prohibition on trading following the dissemination of financial analysis. This publication cannot and is not intended to replace investment advice. The information in this document is based on proprietary analyses as well as external sources that we consider reliable but have not subjected to independent review. We assume no warranty or liability for the accuracy and completeness of the information. The opinions expressed in this document represent exclusively the views of the author and may change at any time; such changes of opinion need not be published. Past performance, simulations, or forecasts are not a reliable indicator of future performance. The value of any investment or income may both fall and rise, and investors may not receive back the total amount invested. Where an investment is denominated in a currency other than the recipient's local currency, changes in exchange rates could have a negative effect on the value, price, or return of that investment.