How 2026 may set the table for stronger bond returns

Higher bond yields in 2026 are rebuilding the income base needed for potentially stronger future returns, making the episode unlike the 2022 sell-off.

• Global bond yields rose as stronger U.S. data, higher energy prices, heavy debt issuance, and renewed inflation fears pressured markets; the 10-year Treasury yield jumped 22 basis points between September 23 and 24 to 5.18%, a nearly 20-year high.
• The Bloomberg U.S. Aggregate Bond Index yield increased by roughly 120 basis points in 2026, while its total return was down about 2.5% through September 24; investors nevertheless entered the sell-off with more income than in 2022.
• In 1999, Treasury yields rose about 170 basis points as growth stayed strong and the Federal Reserve raised its policy rate by 75 basis points, but the repricing created more attractive income and the bond market rallied in 2000 before the Fed began cutting in 2001.
• In 2018, continued Fed tightening left bond returns broadly flat but improved the starting income level; the Aggregate subsequently returned 8.7% in 2019.
• The 10-year Treasury yield fell from its 2018 peak of 3.24% to 1.9% before the Fed's first cut on August 1, 2019, while the two-year yield declined from 2.98% to 1.73%, showing that markets can move ahead of policy changes.

Takeaway: Investors do not need to wait for rate cuts for bonds to perform, because elevated starting yields provide current income and a larger cushion against volatility, although the article notes that bond prices remain exposed to further rate increases and issuer risks.