On September 23, the 10-year U.S. Treasury yield surged to 5.13% during intraday trading—its highest level since July 2007. The 5-year yield also broke above 5% in tandem, while the 30-year yield was around 5.4%. The single-day increase of more than 13 basis points was the largest daily jump since April 2025.
Most people read this as the Fed turning more hawkish. I think that’s a misinterpretation. Breaking it down, long-term yields equal expected future short-term rates plus a term premium. Calculations by Fed staff suggest that this round of long-end yield rise was almost entirely driven by an increase in the real risk premium, while inflation expectations remain anchored near the target. In other words, the market isn’t demanding compensation for “higher inflation”; it’s demanding compensation for “longer duration.” Some estimates say the term premium has jumped by about 200 basis points to the 85th percentile of the range since 1971.
So why has the term premium risen? Supply-side factors. Federal debt is approaching $40 trillion. The annual budget deficit is close to $2 trillion. Interest payments in the current fiscal year are about $1.37 trillion, already exceeding any spending item other than Social Security and Medicare. The Treasury has expanded its long-term bond buyback operations, but one transaction only purchased $5.2 billion with a target of $6.0 billion. After the buybacks, yields actually moved higher—markets clearly aren’t giving “any face” to that. On the same day, a $7.0 billion 5-year auction was also weak: the stopout yield was about 3 basis points above expectations.
So my view is that this looks more like a repricing of debt rather than the outcome of a single Fed policy meeting. Even if the Fed stays on hold, it’s unlikely the long end will return to below 4% on its own. What really matters to watch isn’t the dot plot—it’s the cadence of issuance and the participation rate of overseas buyers.
A question for you: if the power to set the pricing of long-end rates shifts from the Fed to the Treasury’s issuance desk, do you think Bitcoin is a “victim of liquidity being drained,” or a “beneficiary hedging against fiscal trust issues”? Which side are you on, and why?
#U.S. 10-year Treasury yield hits a 19-year high
Most people read this as the Fed turning more hawkish. I think that’s a misinterpretation. Breaking it down, long-term yields equal expected future short-term rates plus a term premium. Calculations by Fed staff suggest that this round of long-end yield rise was almost entirely driven by an increase in the real risk premium, while inflation expectations remain anchored near the target. In other words, the market isn’t demanding compensation for “higher inflation”; it’s demanding compensation for “longer duration.” Some estimates say the term premium has jumped by about 200 basis points to the 85th percentile of the range since 1971.
So why has the term premium risen? Supply-side factors. Federal debt is approaching $40 trillion. The annual budget deficit is close to $2 trillion. Interest payments in the current fiscal year are about $1.37 trillion, already exceeding any spending item other than Social Security and Medicare. The Treasury has expanded its long-term bond buyback operations, but one transaction only purchased $5.2 billion with a target of $6.0 billion. After the buybacks, yields actually moved higher—markets clearly aren’t giving “any face” to that. On the same day, a $7.0 billion 5-year auction was also weak: the stopout yield was about 3 basis points above expectations.
So my view is that this looks more like a repricing of debt rather than the outcome of a single Fed policy meeting. Even if the Fed stays on hold, it’s unlikely the long end will return to below 4% on its own. What really matters to watch isn’t the dot plot—it’s the cadence of issuance and the participation rate of overseas buyers.
A question for you: if the power to set the pricing of long-end rates shifts from the Fed to the Treasury’s issuance desk, do you think Bitcoin is a “victim of liquidity being drained,” or a “beneficiary hedging against fiscal trust issues”? Which side are you on, and why?
#U.S. 10-year Treasury yield hits a 19-year high