Bond yields are skyrocketing

 [Banks and financial institutions all over the nation are holding gobs and gobs of U.S. Treasuries. They were supposed to be extremely safe investments.

But when bond yields soar to crazy levels, bond prices crash.

As a result, banks and financial institutions from coast to coast now have balance sheets that look like horror movies.

Is your bank at risk of failing?

The stage is also being set for a derivatives meltdown of epic proportions.

If bond yields continue to skyrocket, we are going to see things happen in the derivatives marketplace that we have never seen before.

I am talking about the type of scenario where analysts are using words like “nuclear” and “apocalypse” to describe what is occurring.

We desperately, desperately need bond yields to stop rising.

But that isn’t likely to happen, is it?

According to the Wall Street Journal, 10 year U.S. Treasures and 30 year U.S. Treasuries both rose to “their highest levels since 2002” yesterday…]. 

 Credit crunch, rising interest rates, increased taxes, and  slowing rate of growth of the money supply lead to recession. Is a recession coming or some other disaster?

• We’re not in a recession as of October 1, 2026. Growth and jobs are still expanding, but risks have risen because long‑term rates have jumped and the Fed resumed hiking. (bea.gov)
• A broad “credit crunch” isn’t showing up in the main data. Lending standards have mostly stopped tightening and some categories are easing; overall financial conditions remain looser than average. (federalreserve.gov)
• Long rates are at multi‑decade highs (10‑year ≈5.1–5.2%, 30‑year ≈5.5% late September), which pressures bond prices, some bank balance sheets, housing, and valuations. That’s the key macro headwind to watch. (apnews.com)

What’s happening right now (key facts)

• Growth: Real GDP rose at a 2.2% annual rate in Q2 2026 (third estimate released Sept 30). (bea.gov)
• Jobs: August payrolls +162,000; unemployment 4.1%. That’s steady, not recessionary. (bls.gov)
• Inflation: August CPI +0.4% m/m and +3.4% y/y. Energy rose; core is cooler than headline. (bls.gov)
• Rates: The Fed raised the funds rate 25 bps on Sept 16 (now 3.75%–4.00%) and signaled it could hike again. Long Treasuries surged to the highest levels since the mid‑2000s. (federalreserve.gov)
• Credit conditions: July SLOOS shows standards mostly unchanged or modestly easing in business/CRE; household credit still relatively tight by historical ranges. The Chicago Fed’s NFCI is around −0.56 (negative = looser than average). Not a classic crunch. (federalreserve.gov)
• Banks: FDIC’s Q2 2026 profile reports strong capital/liquidity, rising deposits, and higher industry earnings; there have been isolated failures, but no systemic stress sign. Note that higher long rates still mean sizable unrealized losses on some securities. (content.govdelivery.com)
• Taxes: The large 2025 law extended many individual TCJA tax cuts into 2026 (e.g., brackets/standard deduction), so “across‑the‑board tax hikes” in 2026 didn’t materialize. (irs.gov)
• Derivatives: Interest‑rate volatility is elevated, but major markets are heavily centrally cleared and functioning; BIS’s Sept 2026 review characterizes risk appetite as still firm despite higher yields. That argues against an imminent “derivatives apocalypse,” though pockets can stress if yields spike further. (bis.org)

So is a recession coming?

• Base case: Not yet. Growth, employment, and financial conditions don’t show an ongoing contraction today. But the jump in long‑term yields tightens financial conditions with a lag (mortgages, capex, valuations), and the Fed is back to hiking. That raises the odds of a slowdown or mild recession over the next 6–18 months, especially if energy stays high or credit quality weakens. Track: real consumer spending, jobless claims, credit spreads, and small‑business lending in Q4/Q1. (bea.gov)

Practical money moves to consider now
Safety and cash

• Keep cash well within FDIC/NCUA insurance limits per depositor, per ownership category; spread across institutions if needed. For larger reserves, use T‑bills or government‑only money market funds. (content.govdelivery.com)
• If you hold a lot of individual long‑duration bonds bought when yields were low, quantify mark‑to‑market risk and decide whether to hold to maturity or restructure.

Fixed income

• Favor a Treasury/CD ladder (e.g., 3–36 months) to capture today’s high front‑end yields while managing reinvestment risk. Add some intermediate duration gradually if you want recession insurance, but be mindful that 20–30‑year bonds remain very rate‑sensitive. (home.treasury.gov)
• For core bond funds, check effective duration and credit quality; avoid stretching for yield in lower‑quality credit if a slowdown becomes more likely.

Equities and real assets

• Rebalance back to targets; tilt toward quality balance sheets, steady free cash flow, and reasonable valuations. Higher long rates pressure long‑duration growth stocks most.
• If you have concentrated real estate exposure, stress‑test for higher cap rates and refinancing costs, especially in office/CRE.

Debt management

• Prioritize paying down variable‑rate debt. For mortgages, compare the math of prepayments vs. keeping liquidity in T‑bills while rates are elevated.

Contingency planning

• Hold a 6–12 month emergency buffer (business owners: cover payroll and interest for longer).
• If you rely on credit lines, renew early and review covenants; banks report standards are tighter than mid‑cycle norms even if not tightening further. (federalreserve.gov)

Taxes and planning

• Use 2026’s extended brackets/standard deduction to time capital gains/harvesting and Roth conversions; revisit SALT/itemizing vs. standard deduction under the new parameters. Coordinate with a CPA. (irs.gov)

Quick pulse of the big risks to watch next

• Another leg up in oil/energy and sticky services inflation. (bls.gov)
• Credit losses rising in consumer or CRE.
• A sharp widening in credit spreads or a turn in financial conditions from negative to positive on NFCI. (fred.stlouisfed.org)
• A drop in monthly payrolls and a sustained rise in jobless claims.

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Learn more:

1. GDP (Third Estimate), Industries, Corporate Profits, State GDP, and State Personal Income, 2nd Quarter 2026; State PCE, 2025 | U.S. Bureau of Economic Analysis (BEA)
2. The Fed - July 2026 Senior Loan Officer Opinion Survey on Bank Lending Practices
3. How major US stock indexes fared Monday 9/28/2026
4. Employment Situation News Release - 2026 M08 Results
5. Consumer Price Index News Release - 2026 M08 Results
6. Federal Reserve Board - Federal Reserve issues FOMC statement
7. Press Release: FDIC-Insured Institutions Reported Return on Assets of 1.37 Percent and Net Income of $90.1 Billion in Second Quarter 2026
8. IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill | Internal Revenue Service
9. Yields climb, yet risk appetite holds firm
10. Daily Treasury Rates | U.S. Department of the Treasury
11. Chicago Fed National Financial Conditions Index (NFCI) | FRED | St. Louis Fed