Capstone Investment – July 29 2026

By Bryce Pease CFP® Accredited Investment Fiduciary® Casey Morris CFP® Capstone Pacific Investment Strategies, Inc. California, Colorado, Nebraska

In our last article we talked about how yields (interest rates) and high quality U.S. treasury bond prices are inversely related.  If a bond’s price goes up, its yield will go down.  If the price goes down, the yield goes up. Many analysts and economists use yields to project which direction interest rates will move in the future…and by extension, the overall economy.  When interest rates are expected to rise, bond prices tend to go down. And when interest rates are expected to fall, bond prices rise. For that reason, when yields rise across the entire bond market, analysts may see it as a signal that interest rates may rise soon, too.

Why are yields rising now? Because inflation is on the rise. In recent months, consumer prices have gently but persistently inched upward due to skyrocketing oil prices and the lingering effects of higher tariffs. In April, the Consumer Price Index, which tracks price changes for a basket of consumer goods over a 12-month period, rose to 3.8%.1  That’s the highest in three years. The Federal Reserve has a stated goal of keeping the inflation rate at 2%.  (A number we haven’t seen since early 2021).  Because it has a mandate to stabilize prices, when inflation rises, the Fed often turns to its primary tool: Hiking interest rates. So far, the Fed has not yet chosen to do this. But if inflation continues to rise, history suggests the Fed may eventually have no choice. This, ultimately, is why bond yields are on the rise.

Now, why does all this matter?  Well, Treasury yields are an important bellwether for the overall economy.  As they are often seen as the ultimate “safe harbor” investment, investors all over the world buy U.S. treasury bonds so they can simultaneously secure their money while also earning a return on it.  Because of this, many other interest rates and borrowing costs are tied to Treasury bonds.  For example, 2-Year Treasuries affect credit card interest rates, auto loans, short-term personal loans, and business loans. 10-Year Treasuries influence borrowing costs for mortgages. Finally, 30-Year Treasuries are a barometer for how some investors and financial institutions assess the health of the overall economy. As a result, they impact how much companies and municipalities pay in interest on their long-term bonds.

When all these events happen — rising inflation, rising yields, and rising interest rates — it can sometimes affect economic growth. Inflation, obviously, reduces purchasing power, which decreases consumer spending.  But higher yields can have a similar effect because companies have to pay higher interest rates in order to borrow money. At the same time, higher yields can also put pressure on stock valuations. 

It’s worth noting that everything in the last two paragraphs is hypothetical. Economic growth has been solid in 2026, and the stock market has reached record highs. But  we have moved well into the second half of the year, it’s worth keeping an eye on Treasury yields and interest rates as a potential “early indicator” for volatility on the horizon.

1 “Consumer Price Index Summary,” U.S. Bureau of Labor Statistics, /www.bls.gov/news.release/cpi.nr0.htm 

Casey and Bryce   

Phone: 626-915-7006    capstonepacificinc.com