Christopher Combs, Chief Investment Officer, Silicon Valley Capital Partners
October 2, 2026
Ten-year U.S. Treasury yields have moved sharply higher, driven by a convergence of inflation, fiscal, trade, economic-growth and capital-investment forces. While the increase is understandably unsettling to investors, I do not believe the current level of the 10-year Treasury yield is necessarily inconsistent with longer-term historical relationships.
On October 2, the 10-year Treasury was trading near 5.3%, after briefly reaching approximately 5.34%—its highest level since 2002. Yet the historical context is important. Between 1995 and 2007, annual average 10-year Treasury yields generally ranged from approximately 4% to more than 6.5%. In 1995, the annual average was 6.57%; in 2000, 6.03%; in 2006, 4.80%; and in 2007, 4.63%.
From this perspective, today’s yield environment may represent not simply a deterioration in the Treasury market, but a repricing toward an economic regime that looks considerably different from the unusually deflationary period that prevailed during much of the past two decades.
- The Reversal of a Major Global Deflationary Force
One of the most important structural developments affecting U.S. inflation and interest rates over the past quarter century was the extraordinary expansion of global trade, particularly with China.
Beginning around China’s accession to the World Trade Organization in 2001, U.S. companies gained increasingly broad access to lower-cost manufacturing, components, labor and global supply chains. This integration produced substantial economic efficiencies and exerted persistent downward pressure on the prices of many manufactured goods.
That environment contributed to a powerful secular disinflationary force.
The direction of travel has now changed.
The United States began imposing substantial additional tariffs on Chinese imports during President Donald Trump’s first administration, and trade policy has subsequently become increasingly focused on supply-chain security, strategic manufacturing and reduced dependence on China.
The magnitude of the adjustment has already been significant. U.S. goods imports from China declined approximately 29.7% in 2025 compared with 2024, according to the Office of the U.S. Trade Representative.
The important point is broader than any single tariff rate or administration. A global economic structure that spent decades optimizing primarily for cost is increasingly being reorganized around resilience, national security and geographic diversification.
Those objectives may be strategically desirable, but they are not necessarily deflationary.
Reshoring, friend-shoring, tariffs, redundant supply chains and strategic inventories can all increase economic resilience while simultaneously raising the marginal cost of production. The enormous deflationary tailwind associated with globalization therefore appears to be weakening, and in some areas may be reversing.
- The U.S. Economy Has Become Structurally More Technology-Intensive
A second consideration is the extraordinary transformation of the U.S. corporate economy.
Technology and technology-related businesses now occupy a dramatically larger share of American capital markets than they did two decades ago. As of August 31, 2026, Information Technology represented approximately 37.9% of the S&P 500, while Communication Services represented another 9.5%. Combined, those sectors accounted for approximately 47.4% of total S&P 500 market capitalization.
This transformation has important implications for interpreting Treasury yields.
The United States is currently undergoing one of the largest technology investment cycles in modern history. Artificial intelligence, semiconductor manufacturing, data centers, power generation, electrical infrastructure, networking equipment and cloud computing are absorbing extraordinary amounts of capital.
This AI supercycle is fundamentally different from an environment characterized by chronically weak capital investment and excess productive capacity.
Large-scale investment increases the demand for capital.
And, all else equal, a structurally higher demand for capital can contribute to higher equilibrium real interest rates.
In other words, some portion of today’s higher Treasury yields may reflect stronger expectations for future investment, productivity and nominal economic growth—not simply investor concern over inflation or federal borrowing.
Indeed, current market analysis has increasingly identified AI-related investment and anticipated productivity growth as contributing factors to the rise in long-term real interest rates.
- U.S. Technology Companies Are American—but Their Economic Footprints Are Global
There is another complication in interpreting the relationship between U.S. equity-market capitalization and domestic GDP.
Many of America’s largest technology companies derive substantial portions of their revenues, production, intellectual-property monetization and economic activity outside the United States.
Information Technology and Communication Services are among the S&P 500 sectors with the greatest exposure to international revenues.
This creates an important distinction.
The market capitalization of a U.S.-domiciled technology company reflects the value of its global earnings stream. U.S. GDP, however, measures economic production occurring within the United States.
Those are not the same thing.
A semiconductor company, cloud platform or software company headquartered in the United States may create enormous shareholder value from customers and economic activity in Europe, Southeast Asia, Latin America and other global markets. That value can contribute directly to U.S. corporate earnings and market capitalization without appearing dollar-for-dollar as domestic U.S. GDP.
Consequently, the extraordinary expansion of U.S. technology companies can make traditional comparisons among equity-market capitalization, domestic economic activity and interest rates increasingly difficult.
The American equity market has become significantly more global even while the Treasury market continues to price the expected nominal growth and inflation characteristics of the U.S. economy itself.
That distinction can create considerable analytical noise.
- The End of the Ultra-Low Financing Era
The fourth structural change involves the federal government’s own cost of capital.
The long period of globalization, disinflation and extremely accommodative monetary policy allowed the United States to finance an expanding federal debt burden at extraordinarily low interest rates.
That period is now reversing.
As older Treasury securities issued at exceptionally low rates mature, they are increasingly being refinanced at substantially higher prevailing rates. The weighted-average financing cost of Treasury debt has therefore been rising and is now approximately in the mid-3% range.
This matters because higher refinancing costs compound across an enormous outstanding stock of federal debt.
Investors are consequently paying increasing attention not only to the size of annual federal deficits, but also to the cumulative interest obligation associated with financing those deficits.
That concern is legitimate and represents one component of the term premium investors may demand for holding longer-duration Treasury securities.
However, historical context again matters.
Federal interest expense relative to government receipts has climbed substantially from the unusually low levels experienced during the post-financial-crisis period. At roughly 18.5% using our current calculations, however, it is only modestly above levels experienced in the mid-1990s.
The fiscal trajectory deserves close attention, but today’s financing burden should not automatically be interpreted as unprecedented.
Bringing the Forces Together
The rise in the 10-year Treasury yield is therefore better understood as the cumulative result of several major structural transitions occurring simultaneously:
- The fading of the China-driven globalization and deflationary cycle;
- The reintroduction of tariffs and more expensive, security-oriented supply chains;
- The extraordinary expansion of technology within the U.S. corporate economy;
- A massive AI-driven capital-expenditure cycle placing new demands on power, semiconductors, data centers and industrial supply chains;
- The increasingly global nature of U.S. technology-company revenues and value creation;
- A transition away from extraordinarily low Treasury financing costs; and
- Greater investor sensitivity to federal deficits, debt issuance and future interest obligations.
A 10-year Treasury yield above 5% certainly incorporates higher inflation risk, greater Treasury issuance and increased concern regarding the government’s long-term fiscal position.
But that may not be the entire message.
Long-term interest rates also incorporate expectations for real economic growth, productivity, investment demand and the equilibrium return on capital.
If artificial intelligence becomes one of the most significant productivity-enhancing technologies of the next several decades, and if hundreds of billions of dollars continue flowing into data centers, semiconductor capacity, electricity generation, networking infrastructure and related industrial investment, the appropriate equilibrium long-term interest rate may simply be higher than it was during the post-2008 period.
The 2008–2021 interest-rate environment may ultimately prove to have been the historical anomaly—not today’s environment.
In that context, a 10-year Treasury yield around 5% does not automatically signal economic dysfunction.
It may instead be communicating that the United States is moving from an era dominated by globalization, disinflation, inexpensive capital and relatively weak investment toward one characterized by greater domestic capital requirements, AI-driven investment, stronger nominal growth expectations, more constrained global supply chains and somewhat higher structural inflation.
There are unquestionably fiscal risks embedded in today’s Treasury market, and those risks should not be minimized.
But neither should every increase in long-term interest rates be interpreted exclusively as evidence that investors are losing confidence in the United States.
Some portion of today’s higher yields may be the bond market’s rational response to a fundamentally different economic regime.
The central question, therefore, may not be why the 10-year Treasury yield is so high. It may be why investors became accustomed to believing that extraordinarily low long-term interest rates were normal.