The nominal yield on 10-year US Treasury bonds reached 5.3% at the end of the third quarter, its highest level in two decades. Fidelity estimates that the Federal Reserve should raise rates further because its monetary policy remains below the level considered compatible with stable inflation, which has been above the 2% target for more than five years. Real yields rose 68 basis points, compared with only 14 basis points for inflation expectations, indicating a lasting increase in borrowing costs. Commodities surged 16.2%, while long-duration bonds fell 7.7%, amid renewed tensions between the United States and Iran and massive funding needs for artificial intelligence infrastructure. The direction of the next cycle will depend partly on the still-early adoption of artificial intelligence, according to Fidelity, as well as the upcoming rate decisions of the Federal Reserve, the European Central Bank and the Bank of Japan.
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