Why Treasuries Are ‘Risky’ Again | 5 Oct 2026 | Odd Lots

1. Executive Briefing (TL;DR)

• Surge in Long-End Yields: The U.S. 30-year Treasury yield hit ~5.59%, reaching its highest level since 2002, driven by persistent inflation pressures, fiscal deficit expansion, and shifting market perceptions of sovereign risk [00:01:03].
• Breakdown of Stock-Bond Diversification: U.S. Treasuries have lost their traditional post-2000 hedging characteristics, shifting from a negative correlation with equities back toward positive correlation (resembling the 1970s–1990s regime), leaving standard multi-asset portfolios without a natural safe-haven buffer [00:19:00].
• The "Learning from Actions" Channel: Market-perceived Federal Reserve policy reaction functions react sluggishly to verbal forward guidance; forecasters and markets primarily update their inflation-response expectations only after explicit policy rate adjustments occur [00:15:38].
• Risk Premium Re-rating Drives Yields: Over 2020–2025, the majority of the rise in 10-year Treasury yields is explained by Treasuries becoming more "stock-like" and volatile, forcing investors to demand a higher risk premium rather than a shift in long-term inflation expectations [00:29:29].