Long-maturity Treasuries started 2026 on the defensive after the market’s biggest annual gain in five years. The 30-year yield rose to 4.87%, the highest since September, as investors anticipated more Fed rate cuts. Shorter-maturity yields, tied to the Fed rate, remained mostly unchanged.

Last year saw short-dated yields drop as the Fed cut rates, while longer maturities saw less movement. Additional rate cuts, a grim fiscal outlook, and strong US economic data and stock prices continue to put upward pressure on yields.

Expect increased market volatility in 2026, warns portfolio manager James Athey. High stock valuations make bonds a good hedge. Interest-rate derivatives show demand for protection against Fed’s lower bound falling to 0%. US economy remains strong, with inflation exceeding Fed’s 2% target.

The Bloomberg US Treasury index returned over 6% last year. Global bond markets weakened on Friday, with corporate bond sales increasing in January. Investors brace for potential Fed rate cuts and market volatility as they navigate uncertain economic conditions.

Bond markets are facing uncertainty as investors assess the impact of potential Fed rate cuts on inflation. US economy remains strong, with inflation exceeding Fed’s 2% target. Market volatility is expected to rise, making bonds a compelling hedge against historically high stock valuations.

Read more at Yahoo Finance: Long-Maturity Treasuries Fall After Market’s Best Year in Five