The 30-year US Treasury yield breaks 5% again, marking the end of the era when “everything was cheap.”
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The yield on 30-year U.S. Treasury bonds has recently broken above 5% again. Rana Foroohar, a columnist for the Financial Times, pointed out that unlike in 2023, when the yield briefly rose above 5% before quickly falling back, this time the market’s reaction is distinctly different — investors seem to be finally accepting a new reality: the U.S. is saying goodbye to the era of low interest rates and is entering a new phase of more persistent and diverse inflationary pressures.
The article cites a recent client note from Apollo’s chief economist, Torsten Sløk, who said, “Investors should position for a prolonged period of high interest rates in the short, medium, and long term.”
Behind this lies a larger structural story: the three major sources of cheap growth that have driven the U.S. economy for the past 50 years—cheap capital, cheap labor, and cheap energy—are reversing simultaneously.
How did half a century of "cheap dividends" come about?
The yield on 30-year U.S. Treasuries fell from more than 10% in the early 1980s to around 1% during the pandemic. This nearly half-century-long downward trend was no accident.
It was underpinned by a complete macroeconomic logic:
Cheap capital: Decades of globalization and advances in manufacturing technology depressed the prices of goods; oil exporters recycled massive amounts of petrodollars back to the U.S., providing abundant cheap funds; the privatization of pension systems created huge demand for various financial products; and global investors rushed to buy U.S. Treasuries because no country seemed safer than the United States.
Cheap labor: Outsourcing, the decline of unions, waves of automation, and a “shareholder-first” corporate culture (which emphasized financial engineering over investing in employees) all worked to depress wages, especially for non-college-educated workers, continually supporting corporate profit margins.
Cheap energy: The petrodollar system, to an extent, suppressed inflation, and the global energy trade being settled in dollars further reinforced the dollar’s global standing.
These three pillars together supported the U.S.’s half-century of low inflation and low interest rate prosperity.
The three main pillars are loosening at the same time
Rana Foroohar notes in her article that each of these supporting factors is now changing.
On the capital side: With every new Treasury auction, international buyers are declining rather than increasing. Deglobalization and supply chain reshoring will drive up the price of goods and services in the short term. Meanwhile, the foundations of the petrodollar system are being eroded.
On the energy side: Persistent tensions in the Middle East affect Asian energy importers most directly. But in the longer run, this might accelerate major Asian countries’ layouts in clean energy—while the U.S. is backing away from climate commitments. This means long-term capital flows could shift from the U.S. to Asian powers.
On the labor side: In recent years, labor shortages, large-scale strikes (including the successful union action in the auto sector), tightening immigration policies, and growing unionization in some sectors (notably white-collar industries) have all fueled wage gains. However, this trend is partly offset by two factors: first, rising corporate health insurance costs, leading companies to offset by suppressing wages; second, the impact of artificial intelligence.
Another slow variable: debt, geopolitics, and populism
Beyond these overt factors, there are several “slow variables”: ever-rising government debt, growing geopolitical frictions, and the spread of populism.
The combined effect of these risks is that lenders demand higher risk premiums before they are willing to lend—especially for longer-term loans.
This directly pushes up long-term rates, including the 30-year U.S. Treasury yield.
AI: Savior or new source of inflation?
Of all the variables, the path of artificial intelligence is hardest to predict, yet potentially the most consequential.
Rana Foroohar describes two entirely different scenarios:
The optimistic scenario: The productivity benefits of AI spread widely across sectors and individuals, creating new jobs and income sources. Budget lab modeling at Yale indicates that in this scenario, America’s national debt would fall dramatically, and inflation would ease.
The pessimistic scenario: AI becomes merely a tool for companies to cut jobs, slash costs, and boost profits—while the building of AI infrastructure itself (massive consumption of chips, land, water, and power) actually creates new inflationary pressures, raising costs overall. The government would be forced to bail out displaced workers, so debt would rise instead.
Currently, AI giants are devouring vast tracts of real estate, chips, water resources, and electricity, already pushing up the prices of these resources across the broader economy. What the ultimate outcome will be will only become clear in a few years.
The real challenge investors face
The article’s conclusion is direct and sobering: most market participants have spent their entire careers in “the era of cheapness.” Their instincts, models, and expectations have all been calibrated to a low-interest-rate environment.
Now, that environment is changing.
“Expectation inertia” is a powerful force — after the 30-year U.S. Treasury yield surpassed 5% in 2023, many believed it was just a temporary anomaly and would quickly fall back. But this time, the market’s reaction is already different.
Adjustment means letting go of old expectations. For investors used to low rates, this is not an easy thing to do.
Risk Warning and DisclaimerThe market involves risks, and investments require caution. This article does not constitute personal investment advice and does not take into account any user’s particular investment objectives, financial circumstances or needs. Users should consider whether any opinions, views or conclusions in this article fit their individual circumstances. Investing according to it is at your own risk. ```