Historical Behavior

The 30-year U.S. Treasury yield reached 5.19% in July 2007, then quickly declined with the onset of the financial crisis, dropping to 2.2% in December 2008, 1.4% in July 2012, and 1.1% in March 2020 due to the pandemic. During the Federal Reserve's rate hike cycle from 2022 to 2026, the yield rose from 1.8% to 5.14%, completing a full cycle in 19 years. Compared to the 10-year yield (4.68% in 2026), the 30-year premium is 46 basis points, reflecting a repricing of "term premium"—investors demanding higher compensation to hold long-term bonds.

Capital Path

The impact of high yields on capital is clear: the 30-year yield rose from 1.1% in 2020 to 5.14% in 2026, causing U.S. Treasury annual interest payments to increase from $400 billion to $1.2 trillion (from 4% to 8% of GDP). Funds are shifting from "fiscal spending" to "interest payments," with defense, healthcare, and social security spending as a percentage of the budget dropping from 60% to 45% by 2026, while interest payments rise from 8% to 20%. If yields rise to 6% (as expected by fund managers), interest payments will increase to $1.5 trillion (10% of GDP), exceeding defense spending ($850 billion). This explains why the market is concerned about "fiscal dominance"—when interest payments exceed 20% of the budget, the Treasury is forced to issue more bonds, pushing yields higher and creating a vicious cycle.

Analogy + Industry Position

Similar cases include the 1994 U.S. Treasury "massacre"—the 30-year yield rose from 5.5% to 7.5%, causing bond funds to lose 15-20%, prompting institutions like PIMCO to shift to short-term bonds. The 2022 UK "mini-budget" crisis saw the 30-year UK bond yield rise from 1.5% to 4.5%, forcing pensions to sell assets and the Bank of England to buy bonds urgently. Currently, the U.S. is in a "fiscal worry period"—compared to 2007 (debt/GDP 62%) and 2020 (100%), it is projected to reach 120% by 2026, yet yields have only returned to 2007 levels, reflecting the "privilege of the dollar as a reserve currency." The industry position is in a "long-term interest rate repricing period"—the market is shifting from a "low interest rate norm" (average of 2.5% for 30 years from 2010-2020) to a "high interest rate norm" (expected 5-6% from 2026-2030).

Structural Judgment

Essentially, this is a debt crisis caused by capital concentration. When debt/GDP exceeds 100% and interest payments account for over 20% of the budget, the government faces "fiscal dominance"—the central bank is forced to buy bonds to suppress yields, or else the debt spirals upward. This explains why 62% of fund managers expect yields to rise to 6%—not due to "economic overheating," but because of "unsustainable debt." When the market questions fiscal sustainability, long-term bonds are sold off, yields rise, interest payments increase, and debt worsens further. This has driven the narrative of "de-dollarization"—foreign central banks (China, Japan) are projected to reduce their holdings of U.S. Treasuries from $7 trillion to $5 trillion by 2026, turning to gold and local currency bonds. As the dollar's reserve status weakens, demand for U.S. Treasuries declines, structurally raising yields and creating a "debt-yield" spiral.

ABAB News · Law of Cognition

Debt/GDP determines the lower limit of yields
Fiscal dominance is the ultimate nightmare for central banks
Term premium is the shadow of inflation expectations