The most relevant topic for October’s letter is the rapid rise in interest rates since February. There are many reasons for this, but it is not obvious which factors are most important and lasting for bond investors. Here we itemize some of the key reasons:
- Inflation remains stubborn and expectations for future inflation are rising
- Oil markets remain constrained
- High energy costs continue to ripple through all aspects of the economy
- Government debt levels are high and trending higher globally
- Debt refinancing activity is very robust, adding to the supply of bonds
- Economic growth is strong and possibly accelerating
- Risk premiums (what investors expect to earn to accept risk) have risen for all these reasons
Whether this rise in rates is relatively good or bad depends on who you are. If you are a borrower and need capital to make investments or large purchases it is bad as your funding costs are now higher. If you are a lender, it is good because your interest earned is now higher. For consumers, their costs are higher; while for savers, their incomes are higher. If you are subject to a variable interest rate your interest expense is now immediately higher.
How about for investors? Again, this depends. Long-term bond investors have large negative returns, and their bonds will not mature for many years to come, exposing them to years of risk. On the other hand, the performance for short-term bond investors is positive, and they now have a great opportunity to grow their yield by extending their maturities to intermediate-term bonds. As for stock investors, at the extremes, larger companies that are well-capitalized, profitable and paying growing dividends should benefit. Meanwhile, smaller companies that are over-leveraged, unprofitable and do not pay dividends should struggle.
U.S. Treasury Yield Curve
| MATURITY SCHEDULE | YIELD on 12/31/25 | YIELD on 9/30/2026 | INCREASE IN YIELD | ADD’L YIELD | YR-TO-DATE RETURN |
| T-Bill (90 Days) | 3.47% | 4.03% | 0.56% | —- | 3.42% |
| 2-Year Treasury | 3.50% | 4.88% | 1.41% | 0.85% | 0.29% |
| 5-Year Treasury | 3.73% | 5.09% | 1.36% | 0.21% | -1.83% |
| 10-Year Treasury | 4.20% | 5.29% | 1.09% | 0.20% | -4.08% |
| 30-Year Treasury | 4.42% | 5.68% | 1.26% | 0.39% | -7.02% |
This table illustrates the yield curve for U.S. Treasury bonds for various years-to-maturity on December 31, 2025, and compares that to the yields as of September 30, 2026, along with the increase in yield since December 31. For example, the 10-year Treasury increased 1.09% in that time period, from 4.20% to 5.29%. As you can see, all maturity ranges have higher yields today than to start the year, though some have increased much more than others.
In addition, for September 30, we show the additional yield you can earn by extending your maturity across the yield curve. For instance, by extending your maturity from 5-years to 10-years you gain 0.20% in additional interest. Useful to note when you are deciding what maturity range is appropriate for your next bond purchase. Finally, we show that when interest rates rise the longer-term maturities perform worse than the shorter-term maturities, sometimes much worse.
Our strategy for bonds these last several years has been to invest in bonds that are very short-term and of high-quality. We then wait patiently for an opportunity to extend our maturities to the five-to-seven-year range to capture additional income when it is available.
Our strategy for stocks remains the same. We are comfortable continuing to own large, well-capitalized companies that pay and grow their dividends. Our approach has been very rewarding these last several years and we expect that our outperformance will continue through what might be a difficult time ahead.
Please call us with any questions or concerns. As always, we look forward to our upcoming conversations.
Twelve years ago on August 14, 2014, I received regulatory approval from the Securities and Exchange Commission to launch Insight as a Registered Investment Advisory (RIA) firm. From the onset we strived to be valued and trusted counselors to each client and their advisors. We expanded on that with Insight’s Mission Statement, which we’ve included below.
We thank all of you for the confidence and trust you have placed in our advice and service.
MISSION STATEMENT
- Be valued and trusted counselors to each client and their advisors.
- Provide each client with a carefully individualized portfolio.
- Maintain regular, one-on-one communications with clients in accordance with their needs.
- Ensure the highest fiduciary standards and accuracy in handling client assets.
- Strengthen continually the research and investing process that supports our investment philosophy.
- Foster professional growth and recognize the personal achievements of each member of our team.
- Be a responsible corporate citizen.
- Cultivate strategic partnerships which reinforce our mission.