Fixed Income · Interest Rate Strategy Treasury sell - off: beyond the fundamentals

Key arguments

• The 10-year US Treasury yield rose to 5.25%, about 50bp higher than end-August, driven by rising real yields while breakeven inflation remained stable.
• A fair-value regression model based on ISM manufacturing new orders and USD 2y5y implied volatility shows a persistent deviation over the past four years, with actual yields exceeding theoretical levels.
• The rise in the term premium (from negative to +80bp) and higher potential US growth (possibly from AI) may explain the excess cheapening, while energy shocks and wars are not seen as main drivers.
• In the twelve months to September 2026, the 10-year yield rose approximately 80bp above the model's theoretical level, signaling prolonged excess cheapening.

Corresponding source evidence

1. Treasury sell -off: beyond the fundamentals Yields on 10 -year US Treasuries have shown a more bullish trend than suggested by their historical relationship with the economic cycle and market risk proxies.
2. For example, the 10 -year yield now stands at 5.25 per cent, around 5 0basis points higher than at the end of August .The movement inthe 10 -year US Treasury has been driven by a rise inreal yields , whilst 10 -year break -even inflation rates have remained virtually unchanged.
3. In line with historical patterns ,the rise in long -term Treasury yields reflects growing expectations of an increase in the Fed’s official interest rates, which are in turn fuelled by the strength of the US economy and pressures on energy prices.