Published on Oct 2, 2026
This article was written by Adem Tumerkan
Content Editor, Dunham | 2025 ThinkAdvisor Luminary Award Winner | 2026 Wealthies Finalist — Thought Leader of the Year | Macroeconomics, markets, geopolitics & global trends
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The 10-year Treasury yield just broke through its highest level since April 2002, a sign the 45-year bond bull market may finally be ending. At the same time, the Strategic Petroleum Reserve has fallen to its lowest level in over four decades, even as the government plans to release 40 million more barrels. And U.S. housing affordability has dropped back to the same depths it hit in 2023, worse than the peak of the 2006 housing bubble.
The 10-year Treasury yield broke through its highest level since April 2002 this week - a 24-year high¹ - before easing to 5.251% on Thursday as a hawkish Fed, hotter economic data, and the ongoing war with Iran push borrowing costs higher everywhere.
Every mortgage and car loan in the country prices off this yield. Six months ago, before the war escalated, the 10-year traded under 4%. This isn't just a US problem either, Japan's 10-year just hit its highest level since the mid-1990s, and Germany's hit levels last seen in 2008. The global economy is structurally be forced to adapt to higher rates – which has winners and losers.
It feels like bonds have been absolutely massacred over the last few weeks.
To give you some context, the 10-year has spiked about 50 basis points in 18 trading days, starting right after Fed Chair Kevin Warsh signaled at Jackson Hole that a hike was coming. Meanwhile, add in that oil is back above $100/barrel from the war with Iran, plus hotter than expected economic data, and the bond market is blowing out.
And while these are definitely bearish for bonds, it makes me wonder, has the bond market structurally changed?
Or rather, is the 40+ year bull market in bonds over?
Who knows, but it sure feels like it.
See, since 1981, the 10-year yield had one direction - down.
Globalization, better technology, and a wall of global savings took it from a 15.68% peak to 0.55% by 2020. Forty years of falling yields is a significant macro trend, one that likely wouldn't reverse on a single Fed meeting or war.
No. The reason this trend broke since 2020 is that the economy fundamentally changed.
For example:
The AI capex wall. Tech giants are spending something like $750 billion² this year on data centers, increasingly funded off bond issuance, not the kind of floating-rate debt that cares what the Fed does. But the problem is you now have the government and AI firms fighting for every dollar that could flow to the private sector. For example, if an investor has $1, and both the government and an AI firm want it, that dollar flows to whoever offers the best yield. So yields rise to pull capital to their side.
The deficit that won't shrink. Washington is paying over $1 trillion a year³ in interest, for the first time ever, more than it spends on defense. Bigger interest costs mean more debt gets rolled over around the world, which compounds into more debt issuance. And more debt issuance = more supply = higher yields.
The inflation that won't quit. Core PCE (the Fed's preferred inflation gauge) has run hot for 66 straight months⁴ – the longest stretch since the 1980s. The massive surge in government deficits and central bank easing via COVID stimulus shocked the system with money sloshing around. This is adding pressure to yields as investors want to be compensated for it.
But there's one thing to keep in mind. . .
Any deal with Iran or cooler labor data could send the 10-year back down (ease the triggers and some of this unwinds). But AI capex, the deficits, and the sticky inflation don't go away just because the war ends.
The point is - a 24-year high on the 10-year isn't really about April 2002 or even about Iran. It's about forty years of easy money meeting a decade that can't stop borrowing.
But as always, these things are cyclical.
Bear to bull. Bull to bear.
None of this means avoiding bonds altogether. It just means being more selective about duration and credit quality in this cycle than it has in previous decades.
The Strategic Petroleum Reserve (SPR) fell to 283.8 million barrels this week - the lowest in over four decades - and on September 29 the Department of Energy announced releasing another 40 million barrels⁵ anyway.
This reserve exists for one reason - to cushion the country against an oil shock without the government scrambling. Right now it's being used to hold down gas prices during a war immediately after another war saw it bleed out (Ukraine-Russia). A level above 600 million barrels used to be considered a comfortable cushion – but at below 285M barrels is a fragile situation for any other future shocks.
The SPR was built after the 1973 Arab oil embargo so the country would never be caught without options again. And for most of the last four decades it sat in the background, getting bigger and bigger as the U.S. government stockpiled oil.
Well, that's changed fast.
The reserve peaked at about 727M barrels in December 2009 - essentially full. Then came two shocks back-to-back which saw it plunge to less than 285M barrels.
Russia invaded Ukraine in 2022 – which saw oil prices soar (Russia was producing more oil than Saudi Arabia before the war cut their oil out). Because of this, the Biden administration released ~180M barrels to help cool prices, and the reserve bottomed out around 347M barrels by 2023.
It stabilized there - and through 2024 and into early 2026 - the SPR crept back up to around 415M barrels.
Then the war with Iran shut down the Strait of Hormuz, and that slow refill reversed overnight. In March, the Trump administration authorized releasing 172M barrels⁶, part of a coordinated 400-million-barrel release across more than 30 countries.
The reserve has dropped almost every week since then.
Now, on September 29 - with the SPR already at 283M barrels - the Department of Energy announced it would put another 40 million barrels on the market. Thus, assuming if every barrel gets taken, the reserve could briefly fall to around 244 million - under the 252-million-barrel line the law sets for certain emergency drawdowns.
But it’s important to note that the 40M barrels are structured as an loan - and almost nobody wants the loan. Why? Because companies that take this oil have to return it later with a 25% premium. The government offered this same deal in June – and only one company took it, for half a million barrels out of 40 million on offer (oil traders apparently don't love the repayment terms or the crude quality).
The reserve is already running at half strength. A May GAO report that our emergency oil supply is in worse shape than it looks. The equipment and infrastructure is old and behind on repairs, so oil comes out at only about 60% of its designed speed. And refilling is even slower (56%). That means it’s relatively slow to pull out oil when needed, and even slower to refill – a fragile situation.
The point is - the reserve was supposed to be there for the emergency nobody expected. And it did it’s job – twice in five years. But it's now below the level Congress set as a floor for normal use, running on equipment that’s well under its design capacity, and the country is still mid-war.
So, whatever comes next, there's less tank to work with than there's been in more than 40 years.
The Atlanta Fed's affordability index⁷ fell to 68 in July 2026 - below the 71.5 levels from the 2006 housing bubble - as a mortgage rate that touched 7.45% in September and a national shortfall of 4 to 5 million homes keep squeezing buyers.
An index above 100 means a median-income family can afford a median-priced home, and 68 means the typical household needs nearly half again as much income as it has. This isn't limited to coastal cities anymore. Atlanta, Nashville, and markets considered affordable a few years ago are now increasingly locking out Americans.
Home prices have climbed before. Rates have climbed before. But what's rare is both happening at once - on top of a worsening supply shortage.
Taken all together, and housing affordability has become a serious problem.
Just take a look at the Atlanta Fed's housing affordability index.
A score of >100 means a median-income household can afford a median-priced home without breaking a sweat. Anything below 100 means they can't - and the further below, the worse the squeeze.
It sat above 100 as recently as mid-2021 (a passing grade). Then the Fed started hiking just as home prices ballooned from all that stimulus sloshing around. After that, affordability fell off a cliff.
By July 2023, the index hit 68.4, a new low for a series that goes back to 2006. It got worse the next month, down to 67.3. Then it clawed back a bit through 2024 - up to 72.9 in August.
But that recovery didn't last.
By July 2026, the index was back down to 68 - matching where it bottomed out three years earlier.
And this was data before the 30-year surpassed 7% (30-year mortgage touched 7.45% this September - the highest in two years.
To put this into perspective, the national median household income sits around $85,800. To comfortably afford a median-priced home, a household would need about $126,000 – almost more than half than it actually makes.
So what’s making this worse? Three things:
Either wages will have to skyrocket in the coming years to balance this out. Or home prices will have to fall.
My bet is on the latter – but time will tell.
CNBC — 10-year Treasury yield slides after hitting highest levels in 24 years [cnbc.com]
Dunham — AI Capex Records, Inflation, and the Rare-Earth Chokehold [dunham.com]
Dunham — Treasury Buybacks, Profit Margins, and AI Credit Risk [dunham.com]
Federal Reserve Bank of St. Louis — Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [fred.stlouisfed.org]
Reuters — US to loan up to 40 million barrels of oil from SPR, last batch from global deal [reuters.com]
Source link — Trump administration authorized releasing 172 million barrels [linked reference]
Federal Reserve Bank of Atlanta — Home Ownership Affordability Monitor [atlantafed.org]
Zillow — America's housing deficit held steady at 4.7 million units for the first time in years [zillowgroup.com]
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