U.S. government bonds under pressure and stocks in good shape: Is this a sustainable balance—or not?
A divergence is shaping the financial markets this summer of 2026. The U.S. Treasury market is showing one of the most pronounced divergences of the past fifteen years: long-term yields have reached their highest level in nineteen years, while equities and credit are trading at all-time highs. Monetary policy, geopolitical shocks, fiscal dynamics, and the earnings cycle linked to artificial intelligence have all contributed to this balance.
But is this a sustainable equilibrium, or will one of the two asset classes—equities or bonds—necessarily have to move to correct it? If we look at historical data from the past 15 years, the results suggest that episodes of similar extremes have more reliably signaled a recovery in the bond market than they have preceded a reversal in equities or credit.
Short- and medium-duration US government bonds are under pressure — health score at 51 and 38 respectively, with a directional signal close to neutral for the former and at −23 for the latter — while the long-duration segment sits in the same weak range, around 37 in health score and −26 in directional signal, after a brief rebound in late June that was quickly reabsorbed. The 30-year yield, meanwhile, sits at the 100th percentile of the entire 15-year history available in our database, at 5.17% — the highest level since July 2007. And yet the KBMeter market regime still classifies the phase as expansion, with a 50% probability, credit spreads compressed at 2.81, and a positive yield curve at 0.35: no recession signal in sight. It’s a combination that doesn’t normally hold together for long, and four mutually reinforcing dynamics help explain why it’s happening right now.
The first concerns the Federal Reserve. Kevin Warsh was confirmed as head of the central bank in May 2026, and is widely regarded as a monetary-policy hawk who tends to prefer higher rates over the risk of inflation running out of control. At his first June meeting, he emphasized price stability without the usual reference to the full-employment mandate — a tone the bond market read as mildly hawkish, just as the US Treasury leans heavily on short-term debt to fund itself, effectively encroaching on territory that used to belong to the central bank.
Add to this a geopolitical shock that feeds directly into inflation: the conflict with Iran has, since May, triggered a global energy shock, with oil and gas at four-year highs and the Strait of Hormuz effectively closed to traffic. It is the direct trigger for the late-May spike, when the 30-year yield first touched its highest level since 2007.
In the background sits a fiscal dynamic that isn’t an isolated episode but a structural trend.
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