There's a lot more to the rising trend in interest rates than just the Federal Reserve's fight against stubborn inflation

The yield on 10-year Treasurys is breaking out, and there's a lot more to it than comments made by Federal Reserve Chair Kevin Warsh.

The yield on the 10-year Treasury note has risen sharply in recent weeks and, following Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole economic symposium on Friday, it is poised to break out, potentially reaching 5%.

The reason for a move higher may actually have nothing to do with Warsh or the Fed, but may rather be a reflection of higher nominal growth and inflation. Notably, long-term inflation expectations have remained anchored, with the bond market instead passing on the adjustment through higher real rates.

At the same time, global yields are rising and reinforcing the move.

And this matters not only for investors on Wall Street but also for those trying to get by on Main Street, because the 10-year Treasury yield is the benchmark for rates on a number of consumer loans, including home mortgages.

Global forces at work

If one thing stands out, it is that rates from Japan and Korea to France and the U.K. have surged so far in 2026.

Rising rates stem from various factors, including political uncertainty, concerns about increased government spending and central banks that have been slow to raise interest rates to combat inflation.

Sovereign yields have surged as the market reprices risk. It is hard to fight a rising tide, and that is one of the biggest forces behind the recent rise in U.S. rates. They are likely to keep rising on this factor alone. As yields overseas rise, U.S. Treasurys become relatively less attractive to foreign investors, particularly after accounting for currency-hedging costs, putting additional upward pressure on U.S. yields.

U.S. growth points to higher rates

Also notable are fundamental changes in the U.S. economy that have historically been linked to higher interest rates.

For one, growth in nominal gross domestic product has accelerated through the second quarter, reaching about 6.6% year over year, while real growth has fallen to just 2.1% year over year. The difference largely reflects inflation, with the GDP deflator - which measures changes in the price of goods and services produced in the U.S. - rising 4.4%.

Historically, the 10-year Treasury yield BX:TMUBMUSD10Y has generally traded above the year-over-year rate of change in the GDP deflator. With the GDP deflator at 4.4% and the 10-year yield at roughly 4.7%, the spread between the two is historically narrow.

While there have been periods when the GDP deflator has risen above the 10-year yield, most notably during the inflationary period of the 1970s and again following the COVID-19 pandemic, the 10-year yield has generally remained comfortably above the GDP deflator over time.

Nominal GDP is also growing faster than the money supply, which means the velocity of money, or nominal GDP divided by the money supply, is rising. Historically, the 10-year Treasury rate and money velocity have tended to track each other closely. Now, with nominal GDP reaccelerating, that relationship suggests there may still be upward pressure on long-term rates.

The market is repricing real rates higher

Importantly, the adjustment in nominal rates has largely occurred through higher real yields rather than higher inflation expectations.

The market is demanding greater compensation in the form of real yields, which are the difference between nominal rates and inflation expectations.

Despite higher inflation, inflation expectations have remained relatively contained while real yields have moved higher. That suggests the bond market is pricing in not simply an increase in inflation, but a higher level of real interest rates for the U.S. economy.

Technical breakout

The 10-year yield has recently broken free of a symmetrical triangle pattern, which tends to be a continuation pattern, and has been trending higher since the beginning of March.

Currently, the relative strength index indicates bullish momentum in the 10-year rate, with a series of higher lows, and it remains well below the overbought reading of 70.

If the 10-year yield breaks above the resistance region between 4.75% and 4.8%, the next stop could be 5%, as technical resistance is thin until then.

Ultimately, the rise in yields appears to be driven by accelerating nominal U.S. growth, increasingly fueled by higher prices, and a global environment that puts upward pressure on bond yields.

With the market absorbing much of that adjustment through higher real rates, the move in the 10-year may not be finished. How far it can rise is the big question, but the technical charts suggest a move back to 5% is plausible in the short term.

-Michael Kramer