Contrary to fears of a spike, a major rise in 10-year Treasury yields is unlikely. The current wide gap between long-term yields and the Fed's lower policy rate—a multi-year anomaly—makes these bonds increasingly attractive to buyers. This dynamic creates a natural ceiling on how high long-term rates can go.

Foreign institutions, particularly sovereign reserve managers, buy US debt not necessarily because of its yield but because no other market is large or liquid enough to absorb trillions in capital. This creates a captive market and keeps US borrowing costs artificially low.

A powerful, non-obvious driver for investment-grade debt is overfunded pension plans. They are selling equities after a strong run and reallocating to fixed income to lock in high yields and de-risk their portfolios, creating a massive wave of demand that absorbs record supply.

Despite a challenging macro environment, credit spreads remain tight not due to fundamentals but to massive, spread-agnostic demand from yield-based buyers like pensions and insurance companies, who represent over $6.4 trillion in holdings and are increasing allocations.

Concerns over US term premium have receded partly because the Treasury buyer base has stabilized. The declining share of price-insensitive buyers (Fed, foreign investors, banks), which fell from 75% to 50% over a decade, has finally stopped falling, creating a more supportive demand backdrop.

As interest rates rise, the present value of pension funds' future liabilities decreases significantly. This accounting effect reduces their immediate need to purchase long-dated bonds to match those liabilities. This paradoxically weakens a key source of demand for government debt precisely as yields become more attractive, contributing to market pressure.

The massive debt offerings from AI companies are absorbed by insurance companies, whose buying power is fueled by Pension Risk Transfers (PRTs) from corporations with overfunded defined benefit plans. An uptick in PRTs will sustain the market's appetite for long-dated AI bonds.

Pension funds, now overfunded at 112%, are de-risking by shifting from equities to long-duration credit. This, combined with retiring boomers seeking income via annuities, has created a powerful, persistent demand wave for corporate bonds, absorbing record supply.

By mandating that dollar-pegged stablecoins be backed by short-term Treasury bills, the U.S. government is creating a massive, built-in demand for its debt. This new class of buyers is insensitive to yield, seeking only dollar exposure.