The US 10-year Treasury yield has risen from 4.18% at the end of 2025 to around 5.01% as of September 18, 2026. Yet over the same period, the Fed’s broad dollar index has declined by only around 0.2%.
That matters because rising yields alone do not establish that investors are abandoning US assets. A broader loss-of-confidence argument would be more convincing if the bond selloff were accompanied by persistent dollar weakness. So far this year, that combination has been less apparent.
The composition of the yield increase provides stronger evidence. Of the 83-basis-point rise in the nominal 10-year yield, approximately 75 basis points came from higher real yields, while inflation breakevens increased by just 8 basis points. Roughly 90% of the move therefore reflects the real component of rates.
This suggests that the market is demanding a higher inflation-adjusted return to hold long-term Treasuries. It is consistent with the argument that the repricing extends beyond inflation: investors may expect real interest rates to remain higher, require greater compensation for duration risk, or some combination of the two.
Persistent fiscal deficits and substantial private investment needs offer possible explanations. Greater Treasury issuance increases the amount of duration investors must absorb, while investment in infrastructure, energy, and technology can increase demand for long-term capital. Neither mechanism requires inflation expectations to become unanchored.
However, a real-yield story does not exclude fiscal concerns. Investors can retain confidence in the Fed’s ability to control inflation while demanding more compensation for uncertainty surrounding government borrowing and future interest rates. Federal Reserve research on far-forward rates explicitly identifies this possibility.
The dollar also provides an incomplete test. Higher yields may themselves help support the currency, offsetting other pressures. And the timeframe matters: the dollar has been broadly stable in 2026, but remains materially below its early-2025 peak. Stability this year cannot establish that confidence has been unaffected over a longer period.
My interpretation is therefore that the recent Treasury selloff is predominantly a real-yield repricing. The evidence supports a higher required return on long-term US debt, while leaving open how much reflects expected real rates, additional risk compensation or fiscal uncertainty.
The question is increasingly what investors must be paid to hold US duration and why that required return has risen.
By Amir Kh.
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