Wealth Insights

Bonds Commentary

Bonds: Will Policymakers ‘Panicking’ Mean Fixed Income Investors Don’t Have To?

September 2026

Yields across the U.S. Treasury curve rose in the back-half of August with the 2-year yield closing the month at a year-to-date high and the 10-year yield hitting a level last seen in January of 2025. The rise in yields stateside has coincided with a global lift in sovereign bond yields and is a result of a confluence of factors including energy prices remaining elevated as tensions in the Middle East continue to simmer, sticky inflation potentially forcing the FOMC to hike the funds rate this month – and perhaps again before year-end, along with concerns surrounding where demand for long-term U.S. government debt might come from if deep pocketed investors abroad develop a home country bias amid the global lift in sovereign bond yields.

Brent crude closed August at $90.49 per barrel, barely above the $90.12 level where it traded at the end of July, and well below its March 31st high of $118.35 per barrel. On the surface, the price action in crude oil doesn’t stand out as a catalyst for the upward push in bond yields last month. But with no off ramp to the ongoing conflict in the Middle East in sight, market participants see little near term downside for energy prices and, in turn, few reasons for inflationary pressures to ease materially or quickly. The stickiness of crude oil prices at current elevated levels makes it difficult for the ‘doves’ on the FOMC to argue that inflationary pressures will ease and for the Committee to stand pat on rates, which increases the likelihood that policymakers in the U.S. come off the sidelines to tighten monetary policy.

FOMC Chair Kevin Warsh struck a ‘hawkish’ tone at the Kansas City Fed’s annual Jackson Hole Economic Policy symposium at the end of August, and following his speech, Fed funds futures shifted and priced in around a 70% likelihood of a September rate hike. This contributed to an immediate 12-basis point rise in the 2-year Treasury yield and a 4-basis point rise in the 10-year yield. Higher short-term yields imply that bond investors expect the FOMC to hike the funds rate to bring inflation closer to its 2% target, but the rise in long-term yields hints at doubts that those hikes will ease inflationary pressures. There’s a market adage that goes, “bond investors stop panicking when policymakers start panicking.” If this holds true, bond investors may cheer a rate hike this month and long-term yields could stabilize or potentially move lower. However, a single 25-basis point hike is unlikely to break the back of inflation and the new bond vigilantes could push long-end rates higher still, forcing the FOMC and/or Treasury to do more.

On the topic of ‘panicking policymakers,’ in early August, the U.S. Treasury and the Bank of Japan (BoJ) intervened to support the Japanese yen, which had weakened materially relative to the U.S. dollar. After the initial short-covering, traders appeared to wade back into short yen positions mid-month before ‘hawkish’ commentary from BoJ Governor Ueda seemed to all but guarantee a hike at the BoJ’s September 18th meeting The potential for short-term rates to move higher wasn’t enough to cap yields on the long end of the curve as 10-year Japanese Government Bond (JGB) yields moved higher for the seventh consecutive month as global rates drifted higher in sympathy. The move higher in long-end JGB yields coincided with climbing U.S. yields, as the 30-year U.S. Treasury yield edged above 5.3%, prompting Treasury Secretary Bessent to announced that the U.S. Treasury would increase the size of its monthly buybacks of off-the-run 10- to 30-year bonds to improve liquidity. But since that announcement was made, yields in the 10- to 30-year portion of the curve have remained stubbornly elevated and market participants appear skeptical that this move will successfully cap long-end rates.

This remains a challenging backdrop for fixed income investors to navigate. Higher yields on long-dated bonds hold greater appeal for those seeking income, but with the U.S. government’s debt burden now north of $40T and sticky inflationary pressures, a patient and measured approach is required for those looking to lock-in higher yields. We continue to champion diversification within fixed income portfolios and our belief in active management, while maintaining allocations in-line with our long-term benchmark as we await dislocations and opportunities to tactically tilt portfolios.

Jump In Corporate Credit Issuance Could Provide A Test Of Investor Demand. September is setting up for a supply surge from investment grade issuers that could test investor appetite after what has been insatiable demand for public debt in recent months. At the time of this writing, dealers are projecting approximately $215B in new paper to hit the market this month, which could be a test for the investment-grade segment. Market participants have stepped up their yield and spread requirements in recent months due to expectations of continued elevated issuance to fund the AI infrastructure buildout. Tech-sector option-adjusted spreads (OAS) have diverged from the broader corporate bond market since May as growing supply and valuation concerns have investors taking a more discerning look at new deals, and even though credit spreads for technology sector bonds tightened last month as earnings impressed, they remain elevated compared to the broader investment grade index. Rising issuance and wider spreads in technology sector bonds could start to weigh on broader investment grade valuations in the coming months, making active credit selection increasingly valuable.

As of September 11, 2026