Global rates repricing: what the numbers mean for markets in 2026
By Sarah Finance
Markets entered 2026 with a clear repricing of interest rates. Persistent core inflation, firmer-than-expected real yields, tighter liquidity and steady central‑bank messaging have pushed benchmark yields higher since late 2025. That shift is reshaping duration and carry, reweighting sector winners and losers, and raising the odds of more volatile moves in rates-sensitive assets. Below is a concise, market‑ready read on the data, the mechanics driving it, and what investors should watch next.
Quick snapshot (market close)
– U.S. 10‑year Treasury: ~4.25% (+65 bps YTD) – U.S. 2‑year Treasury: ~4.80% (+40 bps YTD) – 2y–10y spread (U.S.): ~-55 bps (inverted) – U.S. core inflation (12‑month): ~3.2% – Euro area core inflation: ~2.7% – German 10‑year Bund: ~2.40% (+45 bps YTD) – French OAT 10y: ~2.95% – U.K. 10‑year gilt: ~3.70% – U.S. 10‑year real yield (breakeven‑adjusted): ~1.05% (≈ +30 bps since mid‑2025)
Why yields moved: the core story
Inflation has come down from pandemic highs but remains above pre‑2021 norms—especially in services and housing. Central banks have kept policy rates elevated relative to neutral and signalled patience, reducing the market’s expectation of near‑term easing. Meanwhile, central‑bank balance sheets have declined meaningfully from peak QE levels (Fed roughly -$1.8 trillion; ECB roughly -€700 billion), tightening liquidity and removing a buyer of long-duration paper. The result: higher real yields, rising term premia and a more inverted front end of the curve.
Drivers to watch
– Inflation persistence: Services inflation and housing costs are the stickiest components; if they stay high, long yields will likely rise. – Policy path and messaging: Clearer easing guidance can compress term premia quickly; hawkish surprises lift short-end expectations. – Real yields and breakevens: Shifts in inflation compensation versus real yields determine much of the long-end move. – Fiscal supply & liquidity: Elevated sovereign issuance or shrinking dealer balance sheets amplifies term‑premium pressure. – Geopolitics and commodities: Large shocks can reprice inflation expectations and safe‑haven flows.
Sector implications — winners and losers
– Fixed income: Duration is punished; higher real yields benefit short-duration cash but hurt long-duration Treasuries and long-duration credit. Term‑premium normalization creates opportunities in yield pickup but increases price volatility. – Equities: Growth and long‑duration tech names see the largest multiple compression as discount rates rise. Quality, cash‑flow‑stable sectors (utilities with pricing power, defensive consumer staples, selected healthcare names) attract flows. – Financials: Banks can benefit from higher short rates through wider net interest margins, but funding stress and higher credit costs leave outcomes mixed. – Real estate and leveraged corporates: Higher funding costs and tighter liquidity increase refinancing risk—especially for lower‑rated names and long‑duration property plays. – Credit: IG spreads have widened modestly (IG OAS ~95 bps; HY spreads ~360 bps) but remain consistent with a neutral‑to‑slow growth scenario.
Concrete sensitivities and scenario thinking
Use these as directional guides based on historical elasticities and current liquidity, not certainties:
– A 0.2 percentage‑point monthly undershoot in core CPI versus consensus has historically trimmed 10‑year yields by ~15–20 bps within two months. – A 0.5% month‑on‑month acceleration in average hourly earnings could lift two‑year yields ~20–30 bps by repricing near‑term policy expectations. – Clear central‑bank easing guidance typically compresses term premia by ~10–25 bps. – Incremental net U.S. Treasury issuance of $300bn over six months could mechanically add ~10–15 bps to 10‑year yields absent stronger demand.
Outlook and baseline projection (12 months)
Central case (60% weight): U.S. 10‑year Treasury to ~4.50% by Q4 2026 (modeled range 3.90%–5.10%). Euro area 10‑year Bund to ~2.70% (range 2.10%–3.40%). This path assumes sticky but gradually moderating services inflation, no major geopolitical shock, and continued balance‑sheet normalization. Expect ongoing volatility around CPI, wages and central‑bank conferences.
Upside risk (15%): Inflation reaccelerates or fiscal supply spikes, pushing 10‑year U.S. yields toward the top of the range and causing further equity multiple compression and spread widening in lower‑rated credit. Downside risk (25%): Clear disinflation surprises and explicit easing guidance reduce term premia and lower long yields toward the bottom of modeled ranges.
Practical takeaways for investors
– Reassess duration exposure: consider trimming long-duration allocations or hedging duration if portfolio liabilities are short. – Focus on cash-flow quality: companies with stable, near‑term cash flows and pricing power will be more resilient to rising discount rates. – Watch issuance calendars: elevated sovereign or corporate primary supply can be a near-term headwind for long yields and credit spreads. – Prepare for episodic volatility: tighter liquidity can amplify moves, so size positions with an eye to execution risk. – Use scenario playbooks: model outcomes for 10‑year yields at 3.9%, 4.5% and 5.1% to understand P&L and balance‑sheet sensitivities.
Markets entered 2026 with a clear repricing of interest rates. Persistent core inflation, firmer-than-expected real yields, tighter liquidity and steady central‑bank messaging have pushed benchmark yields higher since late 2025. That shift is reshaping duration and carry, reweighting sector winners and losers, and raising the odds of more volatile moves in rates-sensitive assets. Below is a concise, market‑ready read on the data, the mechanics driving it, and what investors should watch next.0
Markets entered 2026 with a clear repricing of interest rates. Persistent core inflation, firmer-than-expected real yields, tighter liquidity and steady central‑bank messaging have pushed benchmark yields higher since late 2025. That shift is reshaping duration and carry, reweighting sector winners and losers, and raising the odds of more volatile moves in rates-sensitive assets. Below is a concise, market‑ready read on the data, the mechanics driving it, and what investors should watch next.1