Bonds Commentary

Bonds: Yields On Long-Term Treasuries Back To The Scene Of The Breakout

November 2026

U.S. Treasuries rallied over the back half of October as market participants flocked to safety and quality amid signs of escalation in the Middle East and continued uncertainty surrounding the outlook for AI-related capital raising and investment. After the 10-year Treasury yield jumped to an intra-day high of 5.35% in early October, buyers appeared eager to take advantage of the back-up to lock in higher yields, which forced the 10-year yield back to 4.94% by month-end. In our view, a retracement of this magnitude in such a short period of time isn’t a coincidence and appears largely technically driven as the initial breakout in the 10-year yield that began in mid-September started around this level. The sharp move higher in yields from mid-September into early October appeared to be largely positioning driven as hedge funds built up sizable short positions in long-term Treasuries, forcing yields higher in the process, but lingering concerns surrounding massive AI-related corporate bond issuance in the quarters to come played a supporting role. The 5.35% area on the 10-year Treasury was a logical spot to take profits and cover short positions as that was also the peak for the 10-year yield way back in 2007. From the look of it, this could remain a staunch resistance point on the upside for the 10-year yield.

Following short covering in Treasuries as October ended, hedge fund positioning, in aggregate, appears to be closer to neutral, whereas ‘max short’ long duration bonds was the positioning mid-month. But with this cohort of deep-pocketed investors back on the sidelines, it could take either cooler inflation data and/or signs of trouble brewing for the U.S. economy for them to get long Treasuries and force yields meaningfully lower. Regarding corporate issuance potentially crowding out demand for Treasuries, this concern appeared to subside in the back-half of October as the sharp rise in Treasury yields and widening of credit spreads on corporate bonds led to some deals being downsized or pulled entirely.

Corporate bond issuance has slowed from what was a torrid pace in the first nine months of this year as AI funding concerns have dominated headlines, but new deal activity could ramp up relatively quickly in the new year as companies look to take advantage of the drop in yields. Given the size of projected AI-related investment in the years to come, corporate issuance will likely remain elevated and credit spreads could widen further as investors seek higher yields to adequately compensate them for taking on credit risk related to this buildout. In short, competition for capital coming from corporate bonds isn’t going away, which will likely limit how low yields on Treasuries can go.

U.S. Treasuries, broadly speaking, are trading closer to fair value after starting to look cheap in the back half of October. Investment grade corporate bonds are trading at yields of around 90-basis points above similar duration Treasuries, leaving high grade corporates looking a bit more attractive at the margin for investors willing to take some credit risk. At the end of October, credit spreads on riskier, higher yielding corporate bonds rose to levels not seen since “Liberation Day” in April of last year, but remained tight by historical standards at the index level as weakness was largely isolated to lower rated CCC-rated credits. With the Bloomberg U.S. Corporate High Yield index carrying an 8%-plus yield, should risk appetite and sentiment improve into year-end, we could see a nice rebound out of this segment which saw a painful recalibration in September and October. We maintain positions in-line with our strategic neutral exposures as we still wait for a ‘fat pitch’ to be presented to tactically adjust portfolios.

High Yield Bonds Running In Place, But Waning Debt Issuance Should Ease Funding Concerns. Investors in below investment grade credit didn’t get the commensurate bounce-back that materialized for investment grade corporate bonds last month, as price appreciation was largely driven by the fall in Treasury yields. High yield bond valuations closed out October at a new year-to-date high of 340-bps over like Treasuries, an ominous headline if taken at face value, but the index’s yield-to-worst was lower on the month—we just didn’t see prices appreciate as much as they did in higher quality bonds. That lack of price appreciation is evident in the total return numbers, with the Bloomberg U.S. High Yield index higher by 0.3% while the Bloomberg U.S. Corporate index, which is entirely investment grade, rose by 2.2% even as the former carried an 8.3% yield-to-worst at the end of October.

Not every segment of the high yield market saw higher prices In October as yields on low-quality CCC-rated bonds moved higher for the sixth consecutive month, landing at 15.7%. Credit spreads on this cohort of bonds made new 5-year highs early in November and had surpassed their 2022 highs at the time of this writing. That divergence is telling as individual names are expected to see considerable stress, but we’re not seeing funding concerns push prices of bonds lower in a wholesale manner, which is perhaps at odds with most market headlines. Trading and new issuance activity was healthy last month with only $14.6B in new paper coming to market in October, as issuers held back offerings in anticipation of calmer seas ahead. That lack of supply may increase demand in the months to come and revive risk appetite in the near-term, but credit market participants will continue to monitor BB- and B-rated spreads for any signs of broader contagion.

As of November 13, 2026