Treasury Yields To The Moon? Load Up Now Or Wait?

Yields keep going up - the 10-year Treasury peaked above 15.8% in the early 1980s. Are Treasury yields headed to the moon again? Or should you be loading up now to lock in long-term yields above 5%? Or as many recent headlines seem to be suggesting as of late, should you rather be dumping your Treasuries right away? And is inflation really the primary driver like many media headlines are suggesting? Let's dive into the numbers together and find out!

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The 10-year Treasury peaked above 15.8% in the early 1980s. Are treasury yields headed to the moon again? Or should you be loading up now to lock in long-term yields above 5%? Or as many recent headlines seem to be suggesting as of late, should you rather be dumping your treasuries right away? Hello, Diamond Estec Members, Super Savers and Course fans, I hope you're healthy and well. So, bond yields aren't quite at early 1980s levels just yet, and personally, we hope that they will not get there. More of this later. That said, rates on medium and long-term treasuries have had a nice run-up in recent weeks. At the time of this taping on August 7th, 2026, the 20-year Treasury bond closed out the week at 5.2% and has now been yielding more than 5% for almost exactly one month. This is a level that was last seen just before the great financial crisis of 2008-2009, and then again briefly here with a short spike in late 2023. And the overall picture is similar for other long-term treasuries as well, be it the 5.19% yield for the 30-year or the 4.65% for the 10-year. Whichever way you look, yields on long-term treasuries are currently at attractive levels if we compare them to the past 20 years or so. No surprise then that we've had a lot of discussions around this topic amongst our VIP investment club members, many of whom are close to or already in retirement. And one of the key questions that has come up is whether Marcus and I personally see long-term yields around 5.2% as a golden opportunity to lock in attractive rates on bonds and annuities, or whether these higher yields might be an omen of worse things to come. So, as I mentioned earlier, many media headlines appear to be leaning towards the latter. The New York Times believes that the bond market is signaling rising risks. Other outlets even think that this is an outright credibility warning for the new Fed chairman Kevin Walsh, with the most commonly cited reason seemingly straightforward. The current bout of higher yields may just be the bond market sending another warning on inflation. Now, inflation has been a top of my concern for many since it peaked above 9% post-pandemic, and rightfully so, especially for diamond nested regulars. Inflation is one of the worst enemies for soon-to-be retirees and those who are already in retirement. But as Marcus and I posted in one of our weekly updates last month in our VIP Investment Club, we do not believe that inflation is the main reason driving up bond yields. Of course, no one knows where bond yields may go in the future, and investors should always be on the lookout for risks in finance. But we should also be careful not to lean on inflation as our default explanation just because that's what we've been accustomed to doing for the better half of this decade. Rather than inflation causing doom and gloom in the bond market, Marcus and I personally think that now may be a potential golden moment to lock in a long-term or even lifelong income stream at very attractive levels. So, with that in mind, here are the three topics that we'll be covering in today's video. One, why don't we believe that inflation is the primary reason for higher, medium, and long-term treasury yields at the current time? In this section, we'll walk you through the actual numbers that we haven't really heard anyone talk about yet. Two, if not inflation, what is driving yields up? And three, what are the risks? And what could you do now as an investor? Let's dive in now, folks. Why don't we believe that inflation is the primary reason for higher, medium, and long-term treasury yields at the current time? As I touched upon briefly before, Marcus and I think that the current higher yields may be signaling a potential golden moment to lock in a long-term or even lifelong income stream with treasuries andor annuities. But how can we be so sure that these elevated yields are not a warning from the market about inflation? Now, the market doesn't always tell us why it's doing something, but luckily for us, in this instance, the market does tell us pretty precisely what it thinks inflation will be in the future. Let's walk through an example for a 30-year time horizon where the Treasury issues two types of bonds. At the current time, and as we showed you towards the beginning of this video, the normal Treasury yields 5.19% fixed for 30 years. This is what the market calls the nominal yield. Alternatively, the Treasury Inflation Protected Security, or TIPS, pays only 2.96% fixed for 30 years. This is what the market calls the real yield. That's 2.23 percentage points less than the normal 30-year Treasury. However, the 30-year TIPS will also add the future inflation on top of this fixed real yield of 2.96%. In other words, if you had bought a 30-year TIPS at the close of market this past week, you would always be 2.96% ahead of inflation, which gives investors a simple rule for deciding what they should do. Here are three potential scenarios with a simple rule based on a fixed real yield of 2.96% on the 30-year tips as of August 7th, 2026. Scenario 1. If you think that inflation will only average 2% annually over the next 30 years, the tips would give you a yield of 4.96%. That's this 2.96% fixed real yield plus your 2% annual inflation expectation. That's less than the normal treasury at 5.19%. So you'd buy the normal treasury. Scenario 2. If you think that inflation will average 3% annually over the next 30 years, the tips would give you a yield of 5.96%. Again, that's this 2.96% fixed real yield plus your 3% annual inflation expectation. In this case, that's more than the normal treasury at 5.19%. So you'd buy the tips instead. And scenario 3, if you think that inflation will average exactly 2.23% annually over the next 30 years, the tips would give you a yield of 5.19%. The 2.96% fixed real yield plus the 2.23% inflation adjustment. This is exactly the same as the normal treasury at 5.19%. So it wouldn't matter which one you buy. For this reason, the 2.23% is what is known in the industry as the break-even inflation rate. And it's basically the market's best guess at this point for how high inflation will be on average over the next 30 years. In other words, half the market thinks that inflation over the next 30 years will be higher than 2.23%. And half the market thinks that inflation will be lower, which makes 2.23% the baseline prediction for inflation over the next 30 years. Now, the market has been wrong before, and there are no guarantees. We'll only know after 30 years whether the market is right or wrong with its current prediction. But if we look back into history, the breakeven inflation rate has been a reasonable predictor of future inflation over longer time horizons, despite some flaws and imperfections from uncertainty, liquidity considerations, and other factors. So, with this background in mind, let's look at where the break-even inflation rate currently stands if we compare to the averages over the past 10 years. You can see on this table that at the time of this taping, the current market prediction of 2.23% inflation on average over the next 30 years is actually not very high and even lower than all the averages for the past six years. In fact, you have to go back to the days before COVID to get to multi-year averages that are lower than what we're seeing now. As you can see here, we need to go to the seven-year average from 2019 of 2.16% to find a lower break-even inflation rate than what we're seeing at the moment. So the market is showing a fundamentally optimistic outlook for long-term inflation in our country. 2.23% on average over the next 30 years might not be exactly the 2% the Fed is officially targeting. But it's not too bad either in the grand scheme of things, at least in our opinion. And if you're wondering, the trend is similar for the 5-year and 10-year break-even inflation rates as well. Meaning that, like for the 30-year here, the break-even inflation rate at this point in time is at a six-year low, and you need to go back to 2019 before the pandemic to see average inflation expectations that are lower than where they stand currently. For VIP investment club members who may be contemplating potential TIPS purchases, we'll be posting the slides with the detailed break-even inflation rate and real yield analysis for the 5, 10, and 30-year tips in the member zone later this evening. So keep an eye out for that if you're interested. Now, maybe we missed something, but only a few market analysts and commentators seem to have noticed these low break-even inflation rates across the maturity spectrum. But if we had to summarize the discussions across the handful who have dived into the actual numbers, it seems that the market is considering the ongoing conflict with Iran and the spikes in oil price that we've been seeing recently more as a temporary disturbance, and don't expect them to have a deep and lasting impact on medium and long-term inflation, despite the occasional wobble and even market scare. From a strategic longer-term perspective, and one that Marcus and I have shared with you before, because it is also what we fundamentally believe, the expectation seems to be that the fourth industrial revolution that we're currently living through will generate substantial productivity gains that will keep inflation more or less controlled for the foreseeable future. For example, the latest release by the Bureau of Labor Statistics shows that unit labor costs, the cost to produce one piece of work, which is the ultimate driver of long-term inflation, has been running at an annualized rate of 2% or lower since the second quarter of 2025. This does, however, leave us with one big question. If we're right, and it's not inflation expectations, if the market isn't really worried about longer-term inflation, as we've just shown you, what explains the current bout of higher bond yields? Bringing us nicely to the next part of today's discussion. If not inflation, what is driving yields up? This table here from before on the 30-year TIPS shows you the answer. And again, the picture is generally similar for the five-year and 10-year TIPS as well. While the break-even inflation rate has been going down, as we discussed earlier, the real yield, the fixed yield that a 30-year TIPS will be paying over its lifetime has been going up and stood at 2.96% at the time of this taping on August 7th, 2026. In other words, if the market is right and inflation will be 2.23% on average, both a 30-year TIPS and a normal 30-year Treasury will deliver a 2.96% real yield after inflation. Remember, the break-even inflation rate is the rate at which the TIPS and the normal Treasury deliver the same returns. A 2.96% real yield is more than 2.5 times the 10-year average of 1.16% and higher than any multi-year average from the past 10 years. In fact, it's the highest real yield since the 30-year tips was relaunched in February 2010. Unfortunately, the market doesn't tell us directly why the real yield has climbed so high, but in our mind it's likely a combination of at least three factors. One, the market continues to expect strong economic growth, as indicated by the SP closing at a new all-time high of 7,757.64 on August 7, 2026. To compete with the potential future upside from stocks, bonds will also need to provide higher coupons to stay competitive and attract enough interest from more conservative investors and savers. 2. The volume of outstanding bonds in the US continues to grow, leading again to competition and higher coupons for bond investors. And it's not just the ever-growing volume of currently $30.8 trillion of treasuries that needs to be refinanced. Corporate debt has also been growing to $11.7 trillion, driven by the large amounts of bonds issued to help finance the construction of all the data centers required for AI, among other things. And three, in a way, we may just be going back to a normal state of affairs in bondland. As a consequence of three recessions, the internet bubble of 2000, the great financial crisis of 2008-2009, and COVID in 2020, the past 25 years or so were dominated by long stretches of very low interest rates and flat or even negative yield curves. But as we've said before on this channel, we suspect that we will not be going back to this exceptional state of affairs. A normal and maybe healthier bond market should be paying yields that are not just symbolic, and returns should be significantly higher for long-term bonds than for short-term investments in any case. In fact, for the first time in a while, we're seeing a treasury yield curve where this is truly the case, as you can see on this chart, with the single exception of the 30-year, which is paying slightly less than the 20-year. But the 20-year has often carried a somewhat different story of its own. And as always, if you're interested in being the first to know about the best yielding opportunities in the world of income investing and how to add some potentially higher returns in the boost part of your portfolio, come on over and join our growing member community in our VIP Investment Club, where these conversations happen almost daily. Visit our website at www.diamondest.com and click on this yellow private VIP Investment Club button to learn more and join us today. I've linked everything below for you as well. So, to summarize so far, Marcus and I think that the current attractive yields on bonds and annuities are driven not by inflation fears, but by a fundamentally positive outlook for the US economy in the market and increasing competition for savers and investors, as we can see from the comparison of real yields and break-even inflation rates for tips, which is a nice segue into the next part of today's discussion. What are the risks? And what could you do now as an investor? The fact that markets do not expect higher long-term inflation at the time of this taping is not a guarantee. Circumstances can change quickly. There are definitely significant risks out there, maybe most prominently the ongoing conflict with Iran and the persistent deficits in the federal budget. Plus, not every monthly inflation report from the BLS will be without some ups and downs. But even if inflation stays in the predicted range, yields may still climb higher than where they are now. For instance, if even more companies turn to the bond market to issue new debt andor refinance old debt. Now, we don't think that we headed back to the double digit levels that the 10-year treasury saw in 1981. But who knows, right? Of course, bond yields might also just stay more or less at their current levels or even fall if, say, for example, tech companies fail to deliver on their forecasted earnings and we enter a bear market and maybe even a recession. As we know well, markets are fickle, and positive market sentiment can turn negative when we might least expect it. No one has a crystal ball, and even though we hear Diamond Neste believe that our country and economy will be one of the biggest winners of the fourth industrial revolution, this does not mean that the path forward will be without its setbacks and or sharp declines along the way. So if you're at an age or stage of your life where being heavily invested in the SP 500 and other similar investments keeps you up at night, and or you just don't have the time to ride out any volatility, in our mind, now might indeed be a golden moment to lock in some attractive yields in the base part of your portfolio and start building a lifelong income for retirement. One option may be to build a bond ladder with treasuries and similarly safe bonds up to their maximum maturities of up to 30 years. And for a truly guaranteed lifelong income stream, you might want to consider annuities. Remember, annuities, like many other fixed income investments, are based on treasury yields, so their payout ratios are currently at 20-year highs as well. And from the emails that we've received in recent months, fixed indexed annuities with an income writer seem to be the most popular option amongst our diamond nested regulars right now. As we discussed in detail in this video here from a few weeks back. Also linked below for those of you who might be interested. A 65 and 66-year-old couple in California who invested $100,000 in mid-July of this year into a field with an income rider from an A double plus rated insurance company and waited seven years before they took their first guaranteed annuity paycheck, might have earned a lifelong guaranteed income of $12,796 per year from year eight. And if they waited 10 years before they took their first guaranteed annuity paycheck, they might even have earned a lifelong guaranteed income of $15,200 per year from year 11. And if you're further from retirement but like the current rates and market levels and want to lock in a future guaranteed lifelong income stream at some point further down the line, the same mechanism from fias with an income rider can work quite well. For example, for a $100,000 investment, a slightly younger single male or female of 60 living in Florida, who perhaps is willing to take on a bit more risk with an A plus rated insurance company and let his or her money grow for 12 years worth roll-ups might start receiving a guaranteed lifelong income of up to $21,012 per year from age 72. Even higher than where it was last month. Personally, we feel that these are quite attractive guaranteed payouts on a one-off investment of $100,000 and may or may not be easy to replicate if the investors in our example were to wait to lock in their retirement income in 10 or 12 years only. Keep in mind that all the annuity rates and numbers mentioned in this video are for illustrative purposes only. Your personal rates and conditions are not locked in until you sign your annuity contract. And don't forget, you can also mix and match. For instance, lock in a safe, stable, and predictable guaranteed lifelong income in the future via a fiat with an income writer and some treasuries for the base part of your portfolio, and retain your equity exposure via the boost part of your portfolio. Everyone's financial journey is different, and you will need to decide what's the right approach for your individual circumstances, goals, and expectations. And as always, email us at jenniferdiamonastic.com if you'd like to get connected with a trusted annuity specialist to see what your personal rates and conditions might look like whenever you might be watching this video. There's no one size fits all cookie cutter solution. Any annuity you buy should be customized specifically for you. Alright, Diamond Estec members, Super Savers and Course fans, I hope you enjoyed this video and learned something new. And see you again soon with more brand new wealth building content for your financial journey.