CIO Insight: The truth about today’s rising yields

Rates have been on the rise recently, with the 30-year Treasury yield recently reaching its highest level since 2007. Numerous factors are driving the rise in yields, but one truth about the increase is worth highlighting: It has come without the traditional corresponding rise in rate volatility.

Factors driving higher rates included renewed inflationary pressure from elevated energy prices; persistently large government deficits and AI demand requiring ever-increasing bond issuance; the possibility of the Fed remaining on hold for longer with an expressed desire to operate with a smaller balance sheet; and investors demanding higher term premiums and inflation premiums amid deglobalization and increased geopolitical fragmentation.

Historically, spikes in rates have coincided with a spike in rate volatility. Today, however, rate volatility still sits near the lower end of where it has been in recent years. This means investors are getting more reward per unit of risk, including in the US credit market. See Figure 1. 

In our view, today’s yield backdrop looks more compelling for income than for spread compression. Higher rates continue to support credit technicals, but with spreads tight and the recent rally leaving valuations more demanding, we advocate for discipline and selectivity rather than broadly adding risk—especially where future supply could weigh on performance. 

Our view remains neutral on broad credit beta. We see supportive demand and all-in yields, but also a backdrop in which the AI-related capex boom, heavier forward supply and geopolitical uncertainty argue against chasing spreads tighter. We see risks for spreads to go wider should downside risks become more pronounced and/or supply remain robust. Within that setting, we prefer selective positioning, active rotation out of names vulnerable to supply pressure and a focus on capturing value where new issue concessions are available. 

Figure 1: Yields climb comes amid historically muted volatility

30Y US IG Yield vs MOVE Index (Since March 1, 2025)

Source: Bloomberg. Data as of May 21, 2026. The MOVE Index (Merrill Lynch Option Volatility Estimate) is a measure of price volatility in US Treasuries.

Disclosures

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