Long-term rates are heading higher, putting fresh pressure on stocks and borrowers.
The reason is more complicated than the inflation story getting all the attention.
The 30-year Treasury yield (^TYX) has jumped roughly 10 basis points — or 0.1 percentage point — from its Friday low during Fed Chairman Kevin Warsh's Jackson Hole speech. About half of that move came on Monday.
It's now pressing back toward 5.27%, around the late-July high that rattled markets and prompted Treasury Secretary Scott Bessent to double bond buybacks in an effort to steady the market
Warsh spent much of Friday warning that price pressures remain too high, while oil prices jumped over the weekend amid fresh Middle East tensions.
But look inside the bond move, and something surprising shows up.
Long-term inflation expectations have barely budged — and have actually fallen a bit.
Nearly all of the rise in the 30-year yield since Friday morning has instead come from so-called real yields — what's left after stripping out inflation expectations.
That distinction is easy to miss, but it changes the story.
Investors aren't suddenly betting on much higher inflation over the next 30 years. They're demanding a higher return to lock up money in long-term Treasurys anyway.
Growth expectations, Fed policy, heavy government borrowing, and the extra compensation investors demand for holding long-dated bonds can all push that return higher. The long end of the bond market can move for reasons that have little to do with the next Fed meeting.
Warsh himself gave the move an interesting backdrop on Friday.
"I would be hard-pressed to describe broad financial conditions as restrictive," he said at Jackson Hole.
Higher long-term borrowing costs could begin to change that even without another Fed move.
They also raise the hurdle for stocks, which is why higher rates are becoming a fresh headwind for equities even as earnings remain strong.
A sustained move above that level would push long-term borrowing costs back into the zone that rattled markets last month.
Bessent made the distinction explicit in a Reuters interview on Sunday, saying Treasury can steady a disorderly market but can't dictate the level where yields ultimately settle.
"I don't think I can change the equilibrium price," Bessent said.
Jared Blikre is the global markets and data editor for Yahoo Finance. Follow him on X at @SPYJared or email him at jaredblikre@yahooinc.com.
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