The end of the cheap money era?

The era of extraordinarily cheap money is ending, and 10-year Treasury yields may remain around 5% as inflation, government borrowing and AI investment keep upward pressure on rates.

• After the war in Iran sent energy prices higher in March 2026, the 10-year Treasury yield rose from just below 4% to above 5.3%, its highest level in 24 years.
• Higher rates hurt existing bondholders: the Bloomberg U.S. Aggregate Bond Index fell 3.5% in the third quarter, although maturing bonds can eventually be replaced with higher-yielding securities.
• Oil-driven inflation fears, large fiscal deficits and persistent borrowing needs are pressuring bond markets; U.S. federal debt exceeded $40 trillion in August, while Germany loosened its debt brake in 2025 to fund defense spending.
• Technology companies added more than $200 billion of private debt in 2026 to finance data centers, advanced chips and other AI infrastructure, increasing demand for capital.
• Fixed income portfolio manager Tim Ng considers 10-year yields around 5% reasonable over the next year, while expecting core inflation to continue decelerating and yields to remain in that range.

Takeaway: Investors should adapt to a higher-rate normal rather than assume a return to ultra-low yields; despite near-term volatility, higher income could improve the long-term role and total-return potential of bonds in diversified portfolios.