Government bond yields have faced upward pressure as global competition for capital and debt issuance has persisted.
Government bond yields are expected to rise further in 2026 as global competition for capital intensifies and debt issuance remains elevated, according to T. Rowe Price.
Arif Husain, head of global fixed income and chief investment officer at T. Rowe Price, said his outlook for fixed income markets at the beginning of 2026 expects to see higher new bond issuance than in 2025.
“I continue to expect long-maturity, high-quality government bond yields to rise substantially.”
Husain said global competition for capital is expected to remain strong in 2026, with governments continuing to issue debt to finance deficits, placing upward pressure on yields.
“Furthermore, when factoring in the flood of artificial intelligence (AI)-related debt supply, the volume of new bond issuance is even greater than I feared last year.”
As a result, he said yield curves are expected to continue steepening in 2026 until they reach levels that encourage investors to move out of cash.
While the US Treasury curve has already steepened, with long-maturity yields moving higher, Husain said there is still significant room for further adjustment.
“While the US Treasury curve has already steepened, with long-maturity yields directionally higher, I believe there is still a long way to go.”
He noted that global bond yields have risen despite central banks cutting rates.
“Yields have moved higher, with the Bloomberg Global Aggregate Index’s yield at the end of 2025 not far from its highest level since the global financial crisis. Remember, this has happened when central banks have been cutting rates.”
Husain said investors in US Treasuries will require substantially higher yields before shifting out of cash and into longer-maturity bonds.
“The difference between cash rates and the 10-year Treasury yield in the U.S. was a little more than 30 basis points (bps) as of January 2, 2026. A magnitude of about 150 to 200 bps in the spread could make bonds on the long end attractive, in my view.”
He added that similar yield curve dynamics are already evident in other markets.
“That might seem like a lot, but other countries have already established that type of yield curve. In New Zealand, the difference between cash and 10-year government note yields was more than 200 bps. In Canada, the same yield spread recently reached 120 bps.
“In Japan, the difference between cash and 30-year government bond yields was nearly 270 bps.”
