30-year Treasury yields are at their highest levels since 2007, before the Global Financial Crisis. That sounds alarming, but I argue investors may be looking at the move in rates the wrong way.
Rates aren’t necessarily “surging” to abnormal levels. They’re normalizing after 15 years of abnormally cheap money.
For years after the Financial Crisis, the Fed held rates near zero and used massive QE programs to suppress bond yields. Then in 2020, the economy shut down, the Fed cut rates back to zero, flooded the financial system with liquidity and aggressively bought assets. The 10-year Treasury eventually fell to roughly 0.5%, while 30-year mortgages could be financed near 3%.
Those were the abnormal rates.
Now we have an economy with inflation around 2.7%, economic growth north of 2.5%, wage growth, strong earnings and enormous capital spending flowing into areas like data centers. At the same time, the Fed is no longer running massive QE or holding rates at zero. Short-term rates are around 3.5–3.75%.
In that environment, why should investors lend money for 10, 20 or 30 years at extremely low rates?
If you can earn roughly 3.5% on very short-term money, locking up capital for decades should require additional compensation for inflation, economic growth, credit risk and uncertainty.
That’s why I argue the real historical distortion wasn’t today’s higher yields. It was the ultra-low-rate environment investors became accustomed to.
A 3% 30-year mortgage might have felt normal after years of easy monetary policy, but financially it was extraordinary. I recall getting my first mortgage around 10% and considering it a great deal because my parents had paid roughly 18%.
That doesn’t mean mortgage rates need to return to those levels. It illustrates how dramatically our perception of “normal” changed during the zero-rate era. So yes, 30-year yields reaching their highest levels since 2007 deserves attention. But “highest since 2007” does not automatically mean another 2008 is coming.
The bigger story may simply be that interest rates are finally reflecting an economy with real growth, persistent inflation and far less central-bank intervention.
Rates may not be too high. They may have simply been too low for far too long.
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