Rising Long-Term Interest Rates - Pendragon Capital Management

The direction of long-term interest rates is a topic that touches nearly every corner of the economy and financial markets, from corporate borrowing costs to household budgets and investment valuations. Presently, we are experiencing rising rates. Here’s how that might affect your investing decisions.

Increasing US Treasury Bond Yields

Since March 2026, the yield on the 30-year US Treasury bond rose from about 4.60% to 5.28%. Similarly, during this period, the 10-year Treasury yield increased from 3.96% to currently, 4.81%.

Higher government bond yields influence all the other debt instruments and corporate and municipal bonds yields have also gone up. Understanding how higher rates ripple through the system is essential for making sound long-term financial planning decisions. Here are some key points to keep in mind.

>> See Why bond yields are rising and why everyone should care

>> See Treasury Bonds Yielding More Than 5% May be Tempting—Here’s Why Experts Are Wary

The Price of Money

Interest rates represent the price of money. Many of factors go into determining the prevailing level of interest rates. The two most important are:

1) the expected rate of inflation and
2) the ability of a borrower (including the US government) to pay back a loan.

Headwinds for Borrowers

Higher interest rates create headwinds for borrowers by reducing the availability of credit, raising the cost to service the debt and lowering the value of assets for collateral.

Result = Real Pressure on Households

Higher rates are putting real pressure on households. Credit card delinquencies jumped to 12.8% as of August 2026, and the personal saving rate fell to 2.7% in Q2 2026, reflecting tighter budgets. At the same time, inflation accelerated, with the PCE price index rising 5.1% in Q2 2026, complicating the Federal Reserve’s path forward.

How Rate-Sensitive Market Areas Respond

Growth-oriented stocks, especially technology companies, tend to be sensitive to rising rates because higher rates reduce the present value of future earnings. The Magnificent 7 lost about half their value during the 2021 to 2022 rate surge, a reminder of how quickly sentiment can shift in rate-sensitive areas of the market.

>> See Why Staying Invested Is So Important For the Long Run

Corporate Bond Yields and Credit Cycles

The above chart shows corporate bond yields across credit cycles, which helps illustrate how current yield levels compare historically.

Corporate borrowing rates for investment-grade rated companies and even better “junk” rated companies are towards the upper end of a relatively narrow, recent historical range. However, lower quality “junk” like “CCC” rated debt is where rates have really moved upward.

Clearly, investors are concerned about the economy and are demanding higher returns from lower quality borrowers. Perhaps this is related to three factors.

First, the dramatic capital expenditures required to build out the AI infrastructure need to be financed, and investors are cautious about lending to weaker companies in a new technology.
Second, the capabilities of AI are perceived as a threat to software companies, many of which are small firms.
Third, the state of the consumer is questionable, as the impact of tariffs, higher oil prices, and concerns about AI and employment put pressure on the retail sector, where there are many lower-quality businesses.

Diversification and Financial Goals Focus to Weather Long-Term Interest Rates

It’s important to monitor the direction of interest rates. While current conditions present real challenges, long-term investors who stay focused on diversification and their broader financial goals have historically been well-positioned to navigate periods of economic and market uncertainty.

It’s important for investors to rebalance their portfolios so that their accounts reflect the appropriate risk tolerance and goals. For income-oriented investors, fixed income investments now offer more attractive income opportunities than they have in recent years.

Thanks for reading. Don’t hesitate to reach out with questions.

>> Schedule a Free Consultation with Pendragon Capital Management <<

Note: This blog article is intended for general informational purposes only. Nothing in it should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.

Image credit: Honoré-Victorin Daumier, French (Marseille, France 1808-1879 Valmondois, France), “Check the market…Are our stocks rising?”, 1865, Harvard Art Museums/Fogg Museum, Bequest of Frances L. Hofer

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