Getting Real on Inflation

September 28, 2026 | James Torgerson, Senior Research Analyst

Line chart showing 10-year U.S. Treasury rate, 5-year/5-year breakeven inflation rate, and 10-year real yield from December 2025 through September 2026. The left axis shows rates from 3.6% to 5.4%, and the right axis from 1.6% to 3.0%. The Treasury rate and real yield rise notably in late 2026, while the breakeven inflation rate remains relatively range-bound around 2.3%–2.4%. For full dataset, please contact marquettemarketing@marquetteassociates.com.

The phrase “expectations of higher inflation” has become a staple in financial news to explain the increase in nominal U.S. Treasury rates this year (e.g., the yield on the 10-year U.S. Treasury security has surged over 80 basis points since the start of 2026). Indeed, the U.S. has seen an uptick in inflation over the last few months, with the Consumer Price Index (CPI) reaching 3.4% on a year-over-year basis in August (up from 2.4% in February but down from an intra-year high of 4.2% in May). Higher energy prices due to the conflict in Iran are a major driver of the increase in CPI, and earlier this month the Federal Reserve hiked its benchmark interest rate for the first time in over three years in response to these price pressures. Given these dynamics, some might reasonably assume that expectations of higher inflation are putting upward pressure on interest rates, but a closer look at the data reveals there may be other factors at play.

This week’s chart shows the nominal 10-year U.S. Treasury rate, the real yield on the 10-year U.S. security, and the “5-Year Forward 5-Year Breakeven Inflation Rate,” which represents expected inflation over the five-year period beginning five years from today. As the chart indicates, the breakeven inflation rate has remained largely range-bound in 2026, meaning nominal interest rates and real interest rates have risen in tandem.

Why has the breakeven rate not increased this year? Traditionally, higher inflation occurs when there is too much money chasing too few goods (i.e., “demand-pull” inflation). Supply disruptions that temporarily increase prices, on the other hand, can lead to what is known as “cost-push” inflation. Notably, disruptions in supply chains during the COVID-19 pandemic caused transitory inflation to become embedded since the money supply also increased dramatically during that period. It is important to point out, however, that despite the closure of the Strait of Hormuz, Federal Reserve policy has remained largely restrictive in 2026 and broader monetary conditions have not loosened significantly. Indeed, commodity shocks often lead to temporary increases in price levels, and this dynamic helps explain why long-term inflation expectations have not increased meaningfully since the beginning of the year.

In effect, rising real yields, rather than higher expected inflation, are driving nominal yields higher. Real yields are driven by economic growth and policy dynamics, and recent movements in real yields are primarily a result of stronger growth forecasts combined with a higher term premium due to concerns around fiscal sustainability and government borrowing. While inflation remains an important consideration for investors, the data suggest that the recent rise in nominal yields is being driven more by changes in the economic and fiscal outlook than by expectations of persistently higher inflation.

Print PDF

James Torgerson
Senior Research Analyst

Get to Know James

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content

Line chart showing average option-adjusted spreads (OAS), in basis points, on Bloomberg CCC U.S. High Yield and Bloomberg U.S. Corporate High Yield bonds from December 2025 through October 2026. CCC-rated high yield spreads increased from approximately 600 bps to 1,100 bps, reaching their highest levels in nearly four years, while broader U.S. corporate high yield spreads remained relatively stable, increasing from approximately 260 bps to 330 bps. Source: Bloomberg as of November 6, 2026. For full dataset, please contact marquettemarketing@marquetteassociates.com.

11.09.2026

C’s Get Degrees (of Pain)

The U.S. distressed debt market is showing increasingly pronounced signs of stress. As of this writing, option-adjusted spreads on CCC-rated…

Bar chart comparing October and year-to-date 2026 returns for Korea, Taiwan, Brazil, India, China, and the MSCI Emerging Markets Index. October returns are below zero for most markets, while year-to-date returns range from negative to positive. For full dataset, please contact marquettemarketing@marquetteassociates.com.

11.02.2026

The Haunting of Emerging Markets

Emerging markets faced a challenging October, with the space declining by around 8.3% amid renewed concerns over the sustainability of…

Stacked bar chart showing U.S. private equity deal value by deal size from Q1 2022 through Q2 2026. The y-axis shows percentage of total deal value from 0% to 100%, and the x-axis shows quarters by year. Stacked bar chart showing the percentage of U.S. private equity deal count by deal size from Q1 2022 through Q2 2026. The y-axis ranges from 0% to 100%, and the x-axis shows quarters by year. For full dataset, please contact marquettemarketing@marquetteassociates.com.

10.26.2026

Smaller Deals, Larger Appeal

Private equity activity is increasingly shifting toward smaller transactions, with total deal value for transactions of $100 million or less…

10.08.2026

3Q 2026 Market Insights

This video is a recording of a live webinar held October 22 by Marquette’s research team analyzing the third quarter…

10.22.2026

Will Higher Rates Cramp the Markets?

Anyone who has run a marathon knows the last six miles are brutal — no matter how well the first…

Line chart comparing S&P 500 Index cumulative returns for midterm and non-midterm election years since 1980. The x-axis shows October through December, and the y-axis shows S&P 500 Index cumulative return, ranging from -1% to 8%. For full dataset, please contact marquettemarketing@marquetteassociates.com.

10.19.2026

Divided We Rise?

Since 1980, the S&P 500 Index has generally performed well in the weeks surrounding U.S. midterm elections. Specifically, the index…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >