- Long-dated Treasuries weakened to start 2026 as the 30-year yield rose to about 4.87–4.88%, its highest since September 2025, while short-term yields were steady to slightly lower.
- Bonds just had their best year since 2020, with the Morningstar US Core Bond Index up about 7.3% in 2025 after three Fed quarter-point cuts.
- Markets now price fewer cuts in 2026 (around 60 bp), with long-term yields pressured by inflation risk, fiscal deficits, heavy Treasury issuance, and reduced demand amid quantitative tightening.
- Investors may need to limit duration and favor intermediate maturities, even as higher long yields offer a chance to lock in income for those who can تØمل price volatility.
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The long-maturity end of the US Treasury curve is on the defensive entering 2026. The 30-year yield rose by nearly three basis points to ~4.87%, with earlier intraday highs at ~4.88%, its highest since September 2025. Shorter-dated yields—which are more sensitive to the Federal Reserve’s policy path—held roughly steady or edged lower. This reflects a divergence between expectations for short-term monetary easing and concerns about inflation, fiscal deficits, and the supply of long-term government debt.
2025 was an exceptionally strong year for bond investors, the best in five years, largely driven by a highly profitable interplay of Fed rate cuts (three quarter-point reductions beginning in September) and a supportive economic backdrop. Returns in the Morningstar US Core Bond Index approached +7.3%, with investment-grade corporate debt nearly matching that performance. But those gains may be hard to replicate: markets are pricing only ~60 bp of easing in 2026 versus 75 bp in 2025, and many expect long-term yields to drift upward rather than fall sharply.
Several structural forces are exerting upward pressure on long-term yields: persistent inflation risk, growing Treasury supply to fund fiscal deficits, and a rising term premium.,, At the same time, demand for long-dated bonds appears to be weakening among traditional institutional buyers—such as pension funds, insurers, and foreign central banks—exacerbating the yield increase., Quantitative tightening (central bank balance sheets allowing existing bond holdings to mature without replacing them) further reduces demand.,
Strategic implications for investors involve managing duration exposure carefully. With long bonds facing price risk if yields rise further, portfolios should consider underweighting long-dated Treasuries, especially in environments with fiscal expansion or inflation risk. On the other hand, the current elevated yields offer opportunities to lock in attractive income, particularly for entities that can absorb interest-rate risk. The yield curve’s shape suggests steepening, which could favor intermediate maturities over ultra-long bonds.
Key open questions remain. How aggressive will the Federal Reserve be in cutting rates in 2026? Will fiscal stimulus be large enough to offset rate cuts and drive long yields higher? How will international demand for US Treasuries evolve, especially if inflation persists or credit concerns worsen? And finally, might macro shocks—such as inflation surprises or foreign investor pullbacks—tilt the yield curve unpredictably?
Supporting Notes
- The 30-year Treasury yield rose ~3 basis points to ~4.87% on January 2, 2026; prior intraday high reached ~4.88%, its highest since September.
- Short-term Treasury yields, more closely tied to the Fed’s rate, were little changed or slightly lower.
- The Fed cut its target range for the federal funds rate three times in 2025, each by 25 basis points, starting in September.
- Total return for the Morningstar US Core Bond Index in 2025 was ~7.3%, its best performance since 2020; investment-grade corporate bonds returned nearly 8%.
- Markets price roughly 60 basis points of rate cuts in 2026, less than what occurred in 2025.
- Structural yield pressures include inflation expectations, fiscal deficits, and high Treasury supply; term premiums are elevated.,
- Diminished demand for long-dated bonds among traditional institutional buyers and ongoing quantitative tightening reduce buying pressure at the long end.,