Money Has a Price Again: Why Cheap Capital Will Not Come Back by Decree

Long-term interest rates are rising because government borrowing, AI infrastructure investment, and energy and security spending are creating sustained demand for capital that monetary authorities cannot easily suppress.

• In September 2026, the Federal Reserve delivered its first rate hike in three years, Australia lifted its cash rate to 4.60%, and US 30-year Treasury yields had already exceeded 5.3% in mid-August, a 19-year high.
• US fiscal deficits are roughly 6% of GDP despite unemployment near 4%; federal debt is around US$40 trillion, net interest costs are projected to exceed US$1 trillion this year, and the Treasury needs buyers for about US$2 trillion of new net issuance.
• McKinsey estimates that more than US$5 trillion will be spent worldwide on AI-related data centres through 2030, while energy security, supply-chain rebuilding, and defence spending are adding further capital demand; Brent crude also traded above US$107 a barrel in early September.
• US Treasury attempts to influence long-term yields by increasing bond-buyback operations from US$2 billion to US$4 billion and then US$6 billion failed to prevent yields from moving higher, showing that official intervention does not address the underlying supply-demand imbalance.
• A 5% government bond yield raises the hurdle for equities, property, private assets, and leveraged businesses, while making balance-sheet strength, short maturities, private-market valuations, and hidden duration exposure more important.

Takeaway: Investors should not assume that rates must fall or that policymakers will restore cheap money; they should favour reasonably valued businesses with strong balance sheets, reassess duration risk, use cash and fixed income as sources of optionality, and remain diversified while recognising that recession, disinflationary AI gains, or renewed quantitative easing could still lower yields.