What’s really driving up Treasury yields?

The rise in 10-year Treasury yields is being driven mainly by higher real interest rates rather than accelerating inflation, and resilient growth may allow equities and credit to withstand the move.

• The 10-year Treasury yield rose from around 4% at the start of 2026 to nearly 5%, while core CPI eased from 2.6% at the end of 2025 to 2.5% in the latest reading.
• Historical averages are distorted by the quantitative-easing period, when real rates were near zero; real rates were materially above 2% during the 1990s and the early-2000s flight-to-quality period.
• The S&P 500 gained 2.7% in August and reached several all-time highs, while the MOVE Index ended the month only marginally above its year-start level, suggesting contained bond-market stress.
• Since its 2023 inception, the S&P 500 Daily Covered Call Index returned 71.9%, versus 50.8% for the CBOE S&P 500 BuyWrite Index, although autocallable ETFs are also presented as income alternatives.
• Credit spreads are near historical lows, but investment-grade companies have stronger balance sheets: Net Debt to EBITDA is about half its 1990s average and is forecast by Bloomberg consensus to fall to 1.1 by end-2026.

Takeaway: Investors may be able to tolerate somewhat higher real rates if earnings and the economy remain resilient, but longer-dated corporate bonds still face Treasury-rate risk and may warrant hedging; the conclusions are conditional on contained bond volatility and continued growth.