What’s on Our Minds

Long-end US Treasury yields are normalizing alongside strong economic growth rather than signaling a crisis.

• Long-end Treasury yields have broken above their five-year range, with potential upward catalysts including sticky inflation, elevated energy prices, possible Federal Reserve rate hikes, hyperscalers’ bond issuance, competitive global yields, and fiscal sustainability concerns.
• Nominal GDP is growing at more than 6% year over year, while the Atlanta Fed estimates 5% real GDP growth for the third quarter.
• The S&P Global composite PMI reached its highest level since July 2021, corroborating the picture of continued economic expansion.
• A simple regression of nominal GDP growth against 10-year Treasury yields places the current observation close to the regression line.
• Cerity Partners therefore views current yields as broadly consistent with the economic backdrop, rather than as evidence of a market crisis.

Takeaway: Investors should interpret the rise in long-term Treasury yields primarily as normalization driven by robust growth, while monitoring inflation, fiscal pressures, bond supply, and potential Fed tightening as further upside risks.