The 30-year Treasury yield has once again surpassed 5%, and this time the market's reaction is significantly different from that of 2023—investors are beginning to truly accept the reality of sustained high-interest rates.
Analysis indicates that behind this is a deeper structural shift: the three pillars that supported the US's low inflation and low-interest-rate environment over the past 50 years—cheap capital, cheap labor, and cheap energy—are simultaneously eroding. The direction of AI will be the biggest unknown factor determining future inflation trends.
The 30-year US Treasury bond yield has recently broken 5% again. Rana Foroohar, a columnist for the Financial Times, pointed out in her article that unlike the brief breach of 5% in 2023 followed by a rapid decline, this time the market's reaction is noticeably different—investors seem to finally be accepting a reality: the US is bidding farewell to the era of low-interest rates and entering a new phase of inflation pressure that is more enduring and diverse.
The article cited a recent report sent to clients by Apollo's Chief Economist, Torsten Sløk, stating that "investors should prepare their positions for a sustained high-interest-rate environment in the short, medium, and long term."
Behind this is a larger structural story: the three cheap elements that have driven US economic growth over the past 50 years—cheap capital, cheap labor, and cheap energy—are all undergoing a simultaneous reversal.
How Did Half a Century of the 'Cheap Dividend' Come About?
The 30-year Treasury yield, which dropped from over ten percentage points in the early 1980s to around 1% during the pandemic, this nearly half-century downward trend was not accidental.
It is backed by a complete set of macroeconomic logic:
Cheap Capital: Decades of globalization and technological advancements in manufacturing drove down commodity prices; oil-exporting countries recycled significant amounts of US petrodollars, providing ample cheap funds; pension privatization reforms spurred huge demand for various financial products; global investors rushed to buy US Treasuries because no country was safer than the US.
Cheap Labor: Outsourcing, the decline of unions, automation trends, and a 'shareholder-first' corporate culture (heavy financial engineering, light employee investment) collectively suppressed wages, especially for non-college-educated workers, consistently supporting corporate profit margins.
Cheap Energy: The petrodollar system has to some extent suppressed inflation, as global energy trade is settled in dollars, reinforcing the dollar's global status.
These three pillars have collectively supported half a century of low inflation and low interest rate prosperity in the United States.
Three Pillars Simultaneously Loosening
Rana Foroohar points out in her article that each of these supporting factors is now changing.
Capital Side: With every U.S. bond auction, international buyers are reducing their holdings rather than increasing. Deglobalization and supply chain reshoring will push up commodity and service prices in the near term. At the same time, the foundation of the petrodollar system is being eroded.
Energy Side: The ongoing tension in the Middle East has a direct impact on energy-importing countries in Asia. However, in the longer term, this may accelerate the major Asian countries' shift towards clean energy—while the U.S. is pulling out of climate commitments. This implies that long-term capital flows may shift from the U.S. to major Asian countries.
Labor Side: In recent years, labor shortages, large-scale strikes (including successful labor actions in the auto manufacturing industry), tightening immigration restrictions, growth in union membership in certain sectors (especially in white-collar industries), have all driven wage increases. However, this trend is partially offset by two factors: one, the rising cost of employer-provided healthcare, leading companies to offset it by suppressing wages; and two, the impact of artificial intelligence.
Another Slow Variable: Debt, Geopolitics, and Populism
In addition to the above explicit factors, there are several "slow variables": escalating government debt, intensifying geopolitical frictions, and the spread of populism.
The combined effect of these risks is that lenders demand a higher risk premium to lend money—especially for longer-term loans.
This directly pushes up long-term interest rates, that is, the 30-year U.S. Treasury bond yield.
AI: Savior or New Source of Inflation?
Among all the variables, the trajectory of artificial intelligence is the hardest to judge but may have the most far-reaching impact.
Rana Foroohar presents two starkly different scenarios:
Optimistic Scenario: The productivity gains from AI widely spread across industries and individuals, creating new employment and income sources. The Yale University Budget Model shows that in this scenario, the U.S. national debt would significantly decrease, and inflation would also fall.
Pessimistic Scenario: AI is merely a tool for corporate layoffs, cost reduction, and profit expansion. However, the construction of AI infrastructure itself (which consumes a large amount of chips, land, water, and electricity) has created new inflationary pressures, resulting in a net effect of pushing costs up instead of down. Governments will also be forced to intervene to assist displaced workers, leading to increased debt.
Currently, AI giants are heavily consuming real estate, chips, water resources, and electricity, already driving up the prices of these resources in the overall economy. The ultimate outcome remains to be seen and will take several years to become clear.
The Real Challenge for Investors
The article's conclusion is direct and sobering: Most market participants have spent their entire careers in the "era of cheapness." Their intuition, models, and expectations have all been calibrated in a low-interest-rate environment.
Now, this environment is changing.
"Expectation inertia" is a powerful force—after the 30-year U.S. Treasury bond yield broke 5% in 2023, many thought it was just a temporary anomaly that would soon retreat. However, this time, the market's reaction has been different.
An adjustment means abandoning old expectations. For investors accustomed to low interest rates, this is not an easy task.
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