Bad News for Trump. The US Is In Its Worst Bond Crisis Since Alexander Hamilton Was Leading the Treasury
Treasury yields are punishing bond investors in ways not seen since the nation's founding debt crisis, and the fallout reaches well beyond Wall Street into mortgage rates, retirement portfolios, and the federal government's own borrowing costs.
While stock traders have spent most of 2026 focused on the benchmark S&P 500, the bond side of the classic portfolio has been stuck in a historic slump. The 10-year Treasury yield stood at 5.19% on October 14, 2026, up 1.16 percentage points from a year earlier. BofA Global Research data, shared on X by Mike Zaccardi, CFA, ranks the current slide as the second-longest bond drawdown in US history. That record runs back to the federal debt Alexander Hamilton organized as the first Treasury secretary.
Mike Zaccardi, CFA (@MikeZaccardi), sharing BofA Global Research: “BofA: The 2nd longest bond drawdown in US history”
In more than two centuries of American borrowing, only one period has kept bondholders waiting longer. Hamilton’s plan to have the new federal government take on the states’ Revolutionary War debts created the Treasury market investors trade today. For retirees who count on bond funds to cushion their portfolios, this ranking hits the part of the plan that was supposed to be safe.
Inflation Refuses to Cool, and Bond Prices Keep Falling
Consumer prices rose 3.7% year over year in September 2026. The Federal Reserve had held the upper bound of its target range at 3.75% since December 2025, then raised it to 4.00% on September 17. That rise was a warning to anyone holding bonds bought earlier this decade, when yields sat near much lower levels.
A bond pays a fixed coupon, so when new Treasuries pay more, older bonds have to drop in price until their yields match. The longer the maturity, the more years a holder is stuck with the lower coupon, so long bonds take the steepest price cuts. Over the past year, the 10-year yield rose from a low of 3.97% on February 27 to a high of 5.31% on October 5.
Higher Yields Hand Washington a Bigger Interest Bill
The political problem follows from the same math. Every Treasury the government sells or rolls over at today’s rates locks in higher interest costs for years, and the Trump administration has to pay that bill on top of whatever fiscal agenda it pursues. On October 15, every maturity from 7 years through 30 years still yielded above 5%. The 30-year paid 5.43%, compared with 4.17% for one-month bills. I flagged this pressure when the Treasury faced a heavy auction calendar earlier this month.
Those yields spread through the rest of the economy. Mortgage rates and corporate borrowing costs track longer Treasury maturities, so a long-lasting selloff pressures homebuyers and companies refinancing debt. Higher Treasury yields also raise the return stocks have to beat, which is why Wall Street watches the long bond so closely.
Long Bond Funds Took the Deepest Hits
The iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) is a widely followed long bond ETF, and it holds Treasuries that mature well after the 10-year note. The table shows adjusted price performance through the October 15 close for TLT and three related funds: the iShares 10-20 Year Treasury Bond ETF (NASDAQ:TLH), the iShares 7-10 Year Treasury Bond ETF (NASDAQ:IEF), which is the closest match to the 10-year note, and the iShares 1-3 Year Treasury Bond ETF (NASDAQ:SHY).
| Fund | Year to Date | 1 Year | 5 Years |
|---|---|---|---|
| TLT | -5.05% | -7.69% | -34.05% |
| TLH | -4.33% | -5.53% | -23.11% |
| IEF | -3.19% | -3.22% | -8.07% |
| SHY | 0.79% | 1.52% | 9.63% |
The longer the duration, the deeper the damage. Over five years, TLT lost 34.05%, TLH gave up 23.11% and IEF fell 8.07%, while SHY gained 9.63%. TLT closed at $79.97 after a 2.7% one-week bounce as the 10-year eased to 5.1% on the October 15 Treasury curve. One good week barely dents a five-year hole.
Retirement savers should check what their bond funds actually own. A fund heavy in long Treasuries carries TLT-style risk, while one built on short maturities acts more like SHY. TLT charges 0.15% according to its latest prospectus, and its annualized forward distribution works out to about a 4.68% yield at the current price. I recently looked at whether TLT is a bargain or a trap at these levels. For anyone drawing down a portfolio into this kind of bond market, a loss in the first period of retirement does far more lasting damage than the same loss later, which is the whole case we laid out in a free guide on defending those early years: The First Five Years.
What It Would Take for Bonds to Recover
Bond bear markets have historically ended when inflation turns lower and yields peak. I expect this one to follow that pattern once CPI falls meaningfully below 3.7%. The level I’m watching is the 10-year yield’s 5.31% high from October 5. If the 10-year stays below that ceiling while inflation eases, the October bounce in long funds could turn into a permanent recovery. If the 10-year breaks above it, the second longest drawdown on record would drag on, and TLT would take the biggest hit. For a sense of valuation, the 10-year TIPS yield is at 2.78%, so buyers are now paid a healthy inflation-adjusted return to wait.
Over the long run, Wall Street has historically worked through every bond bear market, and higher starting yields tend to set up stronger future returns. Until the 10-year stays below 5.31% and inflation cools, long bonds remain the riskiest corner of the fixed-income market.
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AJ spent 10 years writing about financial markets at The Motley Fool. His coverage centers on technology stocks and the broader macroeconomic trends, from interest rates to geopolitics, that shape where markets are headed next. AJ is drawn to the stories where big-picture economics and individual companies collide.
