Key Takeaways
- • The 10-year U.S. Treasury yield has risen more than 80 basis points since the start of 2026, but Marquette Associates finds the increase is driven mainly by rising real yields rather than higher expected inflation.
- • The 5-Year Forward 5-Year Breakeven Inflation Rate has remained largely range-bound in 2026, indicating long-term inflation expectations have not meaningfully increased.
- • U.S. CPI reached 3.4% year-over-year in August, up from 2.4% in February but below the 4.2% intra-year high in May, with higher energy prices tied to the conflict in Iran as a major driver.
- • Marquette attributes the real yield increase to stronger growth forecasts and a higher term premium linked to fiscal sustainability concerns and government borrowing.
- • The Federal Reserve raised its benchmark rate earlier in the month for the first time in over three years, and Marquette notes monetary policy has remained largely restrictive in 2026.
Summary
A common explanation for the rise in nominal U.S. Treasury rates in 2026 has been expectations of higher inflation. The 10-year Treasury yield has surged more than 80 basis points since the start of the year, and U.S. inflation has indeed picked up, with CPI at 3.4% year-over-year in August, according to the Marquette Associates analysis. That figure is up from 2.4% in February but well below the intra-year peak of 4.2% reached in May. Higher energy prices stemming from the conflict in Iran are a major driver of the increase, and the Federal Reserve hiked its benchmark rate earlier in the month for the first time in more than three years in response.
Marquette argues that inflation expectations are not the primary explanation. Its chart of the nominal 10-year Treasury rate, the 10-year real yield, and the 5-Year Forward 5-Year Breakeven Inflation Rate shows the breakeven rate has stayed largely range-bound in 2026. Nominal and real rates have therefore risen together, implying the move is concentrated in real yields.
The firm distinguishes between demand-pull inflation, which occurs when too much money chases too few goods, and cost-push inflation, which stems from supply disruptions. Supply shocks such as the closure of the Strait of Hormuz typically produce temporary price-level increases, which Marquette says helps explain why long-term inflation expectations have not risen meaningfully. It also cautions that monetary conditions have not loosened significantly, with Federal Reserve policy remaining largely restrictive. The firm contrasts the current episode with COVID-19-era supply disruptions, which became embedded because the money supply expanded dramatically at the same time.
According to Marquette, recent real yield movements reflect stronger growth forecasts combined with a higher term premium, the extra compensation investors demand for holding longer-dated debt. The term premium rise is linked to concerns about fiscal sustainability and government borrowing. Marquette concludes that while inflation remains an important consideration for investors, the increase in nominal yields is being driven more by changes in the economic and fiscal outlook than by expectations of persistently higher inflation.
Marquette argues that inflation expectations are not the primary explanation. Its chart of the nominal 10-year Treasury rate, the 10-year real yield, and the 5-Year Forward 5-Year Breakeven Inflation Rate shows the breakeven rate has stayed largely range-bound in 2026. Nominal and real rates have therefore risen together, implying the move is concentrated in real yields.
The firm distinguishes between demand-pull inflation, which occurs when too much money chases too few goods, and cost-push inflation, which stems from supply disruptions. Supply shocks such as the closure of the Strait of Hormuz typically produce temporary price-level increases, which Marquette says helps explain why long-term inflation expectations have not risen meaningfully. It also cautions that monetary conditions have not loosened significantly, with Federal Reserve policy remaining largely restrictive. The firm contrasts the current episode with COVID-19-era supply disruptions, which became embedded because the money supply expanded dramatically at the same time.
According to Marquette, recent real yield movements reflect stronger growth forecasts combined with a higher term premium, the extra compensation investors demand for holding longer-dated debt. The term premium rise is linked to concerns about fiscal sustainability and government borrowing. Marquette concludes that while inflation remains an important consideration for investors, the increase in nominal yields is being driven more by changes in the economic and fiscal outlook than by expectations of persistently higher inflation.
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