{"id":16366,"date":"2026-10-06T13:58:49","date_gmt":"2026-10-06T17:58:49","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-asia\/?p=16366"},"modified":"2026-10-06T15:11:37","modified_gmt":"2026-10-06T19:11:37","slug":"long-bonds-light-a-short-fuse","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-asia\/insights\/long-bonds-light-a-short-fuse","title":{"rendered":"Long bonds light a short fuse"},"content":{"rendered":"\n<div class=\"well b-blue-tint-4 mb-4\">\n      <h2 class=\"h5\">Key points<\/h2>\n      <ul class=\"list-spaced\">\n        <li>\n          Low-rate era is over: Long-term yields have ascended to 20-year highs\n          even as central banks lowered short-term rates \u2013 we believe this is a\n          structural shift, not a temporary spike.\n        <\/li>\n        <li>\n          Supply-demand mismatch: Global trends that supported decades of low\n          rates are reversing as capital previously deployed around the world is\n          increasingly pulled back home, reducing demand while bond issuance\n          stays high.\n        <\/li>\n        <li>\n          Healthy repricing, not a crisis: Strong economic growth, investment\n          and rising \u201cneutral\u201d rates are driving yields higher \u2013 we expect\n          continued upward pressure until equilibrium is reached.\n        <\/li>\n      <\/ul>\n    <\/div>\n    <p>\n      When the Federal Reserve started cutting interest rates from a level of\n      5.5 percent back on Sept. 18, 2024, the U.S. 10-year Treasury yield was\n      3.7 percent and the U.S. 30-year was 4.0 percent \u2013 and neither yield has\n      traded lower than those levels in the two years since. Not only that, each\n      now trades around levels not seen in nearly 30 years.\n    <\/p>\n    <p>\n      Despite the Federal Reserve (and many global central banks) cutting\n      short-term policy rates considerably in recent years, longer-dated bonds\n      have been rising steadily throughout \u2013 culminating in the 10- and 30-year\n      sovereign bond yields of most developed-market countries hitting fresh\n      multi-decade highs in recent weeks and months.\n    <\/p>\n    <p>\n      The chart below captures this dynamic in action. The ICE BofA\n      1-3 Year Global Sovereign Plus Index yield fell as low as 2.8 percent\n      earlier this year, down from 4.0 percent in 2023. But as short-term rates\n      started falling in recent years, long-term yields took a one-way flight\n      higher. The ICE BofA 10+ Year Global Sovereign Plus Index yield now stands\n      at 4.9 percent, eclipsing all previous levels dating back to 2002.\n    <\/p>\n    <p>\n      Clearly, short-term yields are now playing catch up, rising over 100 basis\n      points in the past six months alone and are now on the cusp of exceeding\n      even the peak rates of 2023 \u2013 a time when global inflation was running north\n      of 10.0 percent \u2013 compared to around 4.5 percent today. For many, that may\n      seem like a circle that is difficult to square, but we\u2019ll get to that\n      momentarily.\n    <\/p>\n    <!-- EXHIBIT 1-->\n    <h3>Follow the leader?<\/h3>\n    <h4>Short-term bonds finally playing catch-up to long-term bonds<\/h4>\n    <div class=\"container px-0\">\n      <div class=\"row mb-4\">\n        <div class=\"col-lg-10 col-md-8 col-sm-8 col-xs-10 col-xxs-12\">\n          <img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/assets\/wp-content\/uploads\/global\/long-bonds-short-fuse-en-chart-1.png\" alt=\"Short-term bonds finally playing catch-up to long-term bonds\" class=\"img-fluid mb-1-half\" aria-describedby=\"ex1desc\">\n          <ul class=\"rbc-legend\">\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-bar c-grey-light-tint-3\"><\/div>\n              U.S. Recessions\n            <\/li>\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-warm-yellow\"><\/div>\n              Global 1- to 3-year bond yield\n            <\/li>\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-dark-blue-tint-1\"><\/div>\n              Global 10+ year bond yield\n            <\/li>\n          <\/ul>\n          <p class=\"disclaimer\">\n            Source &#8211; RBC Wealth Management, ICE BofA Global Sovereign Plus 1-3\n            Year Index, ICE BofA Global Sovereign Plus 10+ Year Index; data\n            through 9\/23\/26\n          <\/p>\n          <p class=\"sr-only\" id=\"ex1desc\">\n            The line chart compares the yields on global bonds with maturities\n            between 1 and 3 years (represented by the ICE BofA Global Sovereign\n            Plus 1-3 Year Index) to the yields on bonds with maturities of 10\n            years or more (represented by the ICE BofA Global Sovereign Plus 10+\n            Year Index) between Dec. 1996 and Sept. 2026.\n            Shorter-maturity bond yields fell below longer yields during the\n            2020 U.S. recession and rose with longer yields in 2021 and 2022.\n            Shorter yields diverged lower in 2024 and 2025, but have recently\n            begun to catch up to longer yields.\n          <\/p>\n        <\/div>\n      <\/div>\n    <\/div>\n    <p>\n      Regardless, longer-dated bond yields have clearly been flagging something\n      that perhaps central banks, short-term policy rates and markets generally\n      did not \u2013 and it seems as though there are a lot of issues that have been\n      percolating in global bond markets for years, which are now coming to a\n      head, with bond markets once again being front-page news.\n    <\/p>\n    <p>\n      Any lingering doubts about whether the world has truly left the era of low\n      interest rates behind should now be quashed, in our opinion. But if the\n      era of low rates is behind us, then what\u2019s ahead?\n    <\/p>\n    <!-- SECTION -->\n    <h2>The dawn of an old millennium<\/h2>\n    <p>\n      Since 2000, low interest rates have been the name of the game. Both the\n      Federal Reserve and European Central Bank (ECB) cut policy rates to\n      1.0 percent in 2004, before the Global Financial Crisis ushered in an era\n      of zero percent \u2013 and in some cases negative \u2013 interest rates that persisted\n      for years.\n    <\/p>\n    <p>\n      In this context, the recent spike in yields might seem confounding, if not\n      alarming. Yet historically speaking, current yields sit only at the lower\n      end of what arguably might be considered \u201cnormal.\u201d\n    <\/p>\n    <p>\n      Parallels have often been drawn to the 1990s, a seemingly idyllic time of\n      robust economic growth, steady inflation fuelled by strong productivity\n      gains and massive investment. Of course, those parallels are even easier\n      to draw today given the scale of the AI-related infrastructure buildout,\n      the impact on economic activity and the potential to raise economic\n      productivity.\n    <\/p>\n    <p>\n      The corporate demand for capital is now competing with the government\n      demand for capital as global debt and deficits remain elevated even during\n      a time of solid economic growth \u2013 the cost of money is simply going higher\n      as a result.\n    <\/p>\n    <p>\n      Therefore, we think the yield levels that prevailed in the late 1990s are\n      as good a guess as any with respect to where the next stopping point for\n      global yields might be.\n    <\/p>\n    <!-- SECTION -->\n    <h2>Next shoe to drop?<\/h2>\n    <p>\n      Given the sharp rise in yields, a lot has already been priced into\n      markets. But is the global bond selloff nearing the beginning of the end,\n      or is it simply at the end of the beginning?\n    <\/p>\n    <p>\n      In the U.S., traders are now looking for the Fed to raise rates to\n      5.00 percent (currently 4.00 percent); the Bank of England to 5.00 percent\n      (currently 3.75 percent); the ECB to 3.50 percent (currently\n      2.50 percent); the Bank of Canada to 3.50 percent (currently\n      2.50 percent) and the Bank of Japan to 2.00 percent (currently\n      1.25 percent).\n    <\/p>\n    <p>\n      Though yields have repriced a lot of risks, we still harbour concerns that\n      lingering factors could fuel another leg higher.\n    <\/p>\n    <ol class=\"list-spaced\">\n      <li>\n        <strong>Bond supply versus bond demand. <\/strong>With all the bond\n        issuance, a natural question is who is going to buy it? As the second\n        chart (below) shows, a generation of disinflation and low \u2013 and at times\n        negative \u2013 interest rates caused Japanese investors to leave their home\n        market in search of yield, bulking up on U.S. Treasuries to the tune of\n        US$1.3 trillion from barely $200 billion 25 years ago. But as Japan has\n        staged an economic comeback \u2013 and interest rates have normalized with\n        their global peers \u2013 domestic investors may find more attractive\n        opportunities closer to home. If the relationship shown in the chart\n        holds, it would suggest that every $100 billion change in Japanese\n        holdings contributes to a +\/- 50 basis point change in the 10-year\n        Treasury yield. As of July 2026, Japan\u2019s holdings are already down $120\n        billion so far this year and about $300 billion from the peak levels in\n        2021. Broadly speaking, if bond supply continues to rise and demand\n        lags, then naturally yields will keep rising until supply and demand are\n        brought back into balance.\n      <\/li>\n      <li>\n        <strong>Economic overheating. <\/strong>The so-called \u201cneutral\u201d rate of\n        interest that keeps economic balance \u2013 stable prices and maximum\n        employment \u2013 has been rising in recent years and is likely notably higher\n        at the moment as a result of AI-related investment, in our assessment.\n        Put differently, that would mean that the Fed\u2019s three 2025 rate\n        cuts \u2013 when neutral rates were rising \u2013 were perhaps the equivalent of\n        something like six rate cuts. That\u2019s significant monetary stimulus that\n        would be hitting the economy now, given it acts with a lag. To wit, U.S.\n        purchasing managers\u2019 indexes for Sept. 2026 flagged a sharp uptick\n        in economic activity, which also caused a spike in Treasury yields. The\n        risk, in our view, is that the Fed might already be behind the curve\n        despite raising rates at its September meeting and may have to raise\n        rates even more than currently priced in by markets.\n      <\/li>\n      <li>\n        <strong>Term premiums. <\/strong>In the U.S., we see risks around the\n        Fed\u2019s seeming retrenchment under Chair Kevin Warsh in the form of less\n        communication and limited forward guidance, while the Treasury\n        Department\u2019s encroachment into markets this year in the form of currency\n        interventions and enlarged Treasury bond buyback programs could tarnish\n        its credibility and distort market signals. Those two factors, along\n        with others including debt and deficits, are reasons we believe\n        investors could demand greater term premiums \u2013 or higher yields \u2013 to buy and\n        hold longer-dated government bonds. Estimates of the current term\n        premium on the U.S. 10-year Treasury are currently just 0.8 percent,\n        which is still barely half of the average levels that prevailed prior to\n        2008.\n      <\/li>\n    <\/ol>\n    <!-- EXHIBIT 2-->\n    <h3>\n      Treasury yields fell as Japan bulked up on U.S. debt; now a reversal risks\n      a further rise in yields\n    <\/h3>\n    <div class=\"container px-0\">\n      <div class=\"row mb-4\">\n        <div class=\"col-lg-10 col-md-8 col-sm-8 col-xs-10 col-xxs-12\">\n          <img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/assets\/wp-content\/uploads\/global\/long-bonds-short-fuse-en-chart-2.png\" alt=\"Treasury yields fell as Japan bulked up on U.S. debt; now a reversal risks a further rise in yields\" class=\"img-fluid mb-1-half\" aria-describedby=\"ex2desc\">\n          <ul class=\"rbc-legend\">\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-dark-blue-tint-1\"><\/div>\n              Japan U.S. Treasury holdings (USD trillions, inverted, left)\n            <\/li>\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-warm-yellow\"><\/div>\n              10-year U.S. Treasury yield (right)\n            <\/li>\n          <\/ul>\n          <p class=\"disclaimer\">\n            Source &#8211; RBC Wealth Management, Bloomberg, U.S. Treasury Department;\n            data through 9\/23\/26\n          <\/p>\n          <p class=\"sr-only\" id=\"ex2desc\">\n            The line chart shows the amount of U.S. sovereign debt held by Japan\n            and the 10-year U.S. Treasury yield, from 2000 through mid-2026. As\n            Japan\u2019s Treasury holdings increased from $0.3 trillion in 2000 to\n            more than $1.3 trillion in 2020, the U.S. 10-year yield trended\n            downward. Since 2020, the 10-year yield has increased from around one percent\n            to five percent. Japan\u2019s debt holdings have decreased moderately, with a\n            recent sharper decrease to roughly $1.1 trillion.\n          <\/p>\n        <\/div>\n      <\/div>\n    <\/div>\n    <p>\n      All that said and as is often the case, the cure for high yields is high\n      yields themselves \u2013 either they rise so high that investors can\u2019t ignore the\n      value and rush in to buy them, or something breaks. As it stands, we don\u2019t\n      see the risk of either as particularly high, and that is why we maintain\n      the view that we have held all year: global yields are more likely to keep\n      grinding higher.\n    <\/p>\n    <!-- SECTION -->\n    <h2>A recalibration, not (yet) a reckoning<\/h2>\n    <p>\n      At the end of the day, we see no single factor that explains the ongoing\n      rise in global yields; we don\u2019t see two factors; we don\u2019t even see three\n      factors. There are dozens of things at play.\n    <\/p>\n    <p>\n      To be sure, while we think the Middle East war and the spike in oil prices\n      have played a notable role in the rise of longer-term bond yields and the\n      swift repricing of central bank rate hike expectations, we think its\n      importance is somewhat overstated. The consistent rise in longer-term bond\n      yields predates this year\u2019s spike in oil prices and has been telling a\n      more fundamental story underpinned by the structural factors at play.\n    <\/p>\n    <p>\n      But when we take a step back, it simply seems that all the normal signals\n      coming from both markets and the economy point to one simple truth:\n      interest rates just need to be higher, and markets are in the midst of\n      repricing that reality.\n    <\/p>\n    <!-- EXHIBIT 3-->\n    <h3>\n      Key U.S. borrowing costs rising on the back of the benchmark 10-year\n      Treasury yield\n    <\/h3>\n    <div class=\"container\">\n      <div class=\"row mb-4\">\n        <div class=\"col-lg-10 col-md-8 col-sm-8 col-xs-10 col-xxs-12\">\n          <img decoding=\"async\" src=\"https:\/\/www.rbcwealthmanagement.com\/assets\/wp-content\/uploads\/global\/long-bonds-short-fuse-en-chart-3.png\" alt=\"Key U.S. borrowing costs rising on the back of the benchmark 10-year Treasury yield\" class=\"img-fluid mb-1-half\" aria-describedby=\"ex3desc\">\n          <ul class=\"rbc-legend\">\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-bar c-grey-light-tint-3\"><\/div>\n              U.S. Recessions\n            <\/li>\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-warm-yellow\"><\/div>\n              30-year U.S. mortgage rate\n            <\/li>\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-sky\"><\/div>\n              U.S. corporate index yield\n            <\/li>\n            <li class=\"rbc-legend-item\">\n              <div class=\"rbc-legend-line c-dark-blue-tint-1\"><\/div>\n              U.S. Treasury index yield\n            <\/li>\n          <\/ul>\n          <p class=\"disclaimer\">\n            Source &#8211; RBC Wealth Management, Bloomberg US Treasury Index,\n            Bloomberg US Aggregate Corporate Index, Mortgage Bankers\n            Association; data through 9\/21\/26\n          <\/p>\n          <p class=\"sr-only\" id=\"ex3desc\">\n            The chart shows the yields on U.S. corporate debt (represented by\n            the Bloomberg Aggregate US Corporate Index) and U.S. Treasuries\n            (represented by the Bloomberg US Treasury Index) as well as the\n            average 30-year U.S. mortgage rate, from Dec. 1996 through\n            Sept. 2026. All three rose quickly following the end of the\n            brief 2020 U.S. recession, and have been trending higher again since\n            the end of 2025.\n          <\/p>\n        <\/div>\n      <\/div>\n    <\/div>\n    <p>\n      With much of the focus on the 10-year Treasury yield, which Fed Chair\n      Kevin Warsh recently characterized as \u201c\u2026 the most important asset anywhere\n      in the world \u2026 it\u2019s the risk-free asset which every price of virtually\n      every asset in the world is related to,\u201d it\u2019s important to solidify our\n      thinking there. Over the near term, we see it eventually finding a trading\n      range of 5.25 percent to 5.75 percent. Should the 30-year Treasury yield breach\n      6.00 percent \u2013 which we think is possible \u2013 then the 10-year could be dragged toward\n      that level as well. But our working thesis for now is that, if the Fed\n      were to take its policy rate toward 5.00 percent, we would add 25 basis points\n      for a target two-year Treasury yield around 5.25 percent, and then add another 25\n      basis points for a target 10-year Treasury yield around 5.50 percent as strong\n      economic growth and low recession risks should keep yield curves\n      positively sloped rather than inverted.\n    <\/p>\n    <p>\n      Finally, and of course, if a fuse has seemingly been lit under global bond\n      markets, then what happens when it runs out? Well, the powder keg explodes\n      or \u2013 and hopefully \u2013 it turns out to be a dud.\n    <\/p>\n    <p>\n      In short, we think it proves to be a dud. Bond yields can rise for \u201cbad\u201d\n      reasons, but they can also rise for \u201cgood\u201d reasons. To this point, we\n      think the bulk of the move has been for largely good reasons. That is,\n      strong economic growth, higher neutral interest rate levels globally, and\n      attractive investment alternatives. Of course, there\u2019s a lingering risk\n      that some of the bad drivers of higher yields come into play like\n      inflation and\/or term premiums, but for now, we err on the side of this\n      being a healthy recalibration.\n    <\/p>\n","protected":false},"excerpt":{"rendered":"<p>Global bond yields have hit fresh multi-decade highs, but is this a warning sign or a healthy market recalibration? We explore the structural forces reshaping interest rates worldwide.<\/p>\n","protected":false},"author":22,"featured_media":16372,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"rbcwm_post_date":"2026-10-06T08:49:10","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[42],"tags":[781,782,783,784],"rbcwm_content_owner":[390],"rbcwm_need":[],"rbcwm_segment":[],"rbcwm_solution":[],"rbcwm_topic":[212],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-16366","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-bonds-2","tag-global-bond-yields","tag-long-term-bonds-2","tag-short-term-bonds","rbcwm_content_owner-pag","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"Global bond yields have hit fresh multi-decade highs, but is this a warning sign or a healthy market recalibration? We explore the structural forces reshaping interest rates worldwide.","rbcwm_post_author":[92],"rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":"","disclaimer_footnote":""},"rbcwm_insight_cta_id":[8376],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2","rbcwm_toc_sub_selector":false},"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.5 (Yoast SEO v28.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Long bonds light a short fuse<\/title>\n<meta name=\"description\" content=\"Global bond yields have hit fresh multi-decade highs, but is this a warning sign or a healthy market recalibration? 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