Back to school: Bond markets face an Economics 101 problem

Long-term bond yields are likely to remain elevated and volatile because governments and AI-related companies are competing for scarce long-duration capital.

• The U.S. 30-year Treasury yield rose above 5.3% in summer 2026, its highest level since 2007, while long-term yields also increased in Germany, Japan and the U.K.
• U.S. federal debt has exceeded $40 trillion, the annual deficit is expected to rise above $3 trillion within the next decade, and global public debt could reach 100% of GDP by 2029 from roughly 94% last year.
• U.S. net interest expense already exceeds $1 trillion annually and is projected to roughly double over the next decade, increasing financing needs as existing debt rolls over at higher costs.
• Hyperscalers and other AI-related issuers raised nearly $400 billion in U.S. markets in 2026; the Dallas Fed estimates that $300 billion of AI investment-grade issuance could create up to $360 billion of duration supply, around one-eighth of Treasury duration supply.
• Treasury buybacks increased from $2 billion to at least $4 billion per operation for some 10- to 30-year securities in August, briefly lowering long-term yields by about 10 basis points without materially changing overall financing needs.

Takeaway: Nuveen prefers short- and intermediate-maturity yields over extending duration, forecasting the U.S. 10-year yield around a wide 4.75% range through year-end; it sees longer-term opportunities in municipal bonds and, for European investors, currency-hedged U.S. credit, although term premiums are expected to remain volatile.