On August 18, 2026, BMO's Open Outcry Podcast brought together Bipan Rai, BMO's Head of Macro Strategy, and Ian Lyngen, Head of US Rate Strategy at BMO Capital Markets, for a sharply analytical examination of the forces pressing US Treasury yields to multi-decade highs. What emerges from the conversation is not a single clean thesis but a web of mutually reinforcing pressures that Lyngen and Rai argue investors cannot afford to dismiss as transitory noise.
Why 30-Year Yields Are Above 530 Basis Points
The headline fact Rai anchors the conversation to is stark: US 30-year yields have climbed above 530 basis points, their highest level in decades. The natural question is whether this represents an inflation story or a real-rate story. Lyngen's answer is unambiguous: "I think it's a combination of factors. Yes, there's a real rate story, and the real rate story is largely a function of the fact that, as you pointed out earlier, we are in a bit of a Goldilocks scenario for the US economy."
Lyngen breaks the real-rate pressure into three interconnected forces. First, a global fiscal reckoning: the market is looking at deficit trajectories across developed economies and concluding that issuance will need to increase, requiring higher real rates to clear the supply. Second, an AI-driven growth narrative that, if one believes it is sustainably lifting potential GDP, argues for a structurally higher R-star. Lyngen is skeptical of that framing in the long run. "I think that longer-term AI will be disinflationary," he says. Third, and perhaps most underappreciated, hyperscaler corporate bond issuance has been flooding fixed income markets with duration, and investors purchasing those sizeable deals are doing so at the cost of Treasury holdings particularly at the long end.
Thirty-year breakevens, by contrast, remain relatively contained at around 223 basis points, a signal Lyngen reads as the market's vote of confidence in Fed Chair Kevin Warsh's willingness to fight inflation when necessary, even in the absence of clear forward guidance.
The Deficit Story in Context
Rai presses Lyngen on whether the structural deficit picture represents a continued upward catalyst for yields. Here, Lyngen introduces a reframe that carries real analytical weight. "The deficit story is a fascinating one," he says. "We're still in the low to mid-5% range" as a share of nominal GDP, well below the 6.5 to 7% levels many feared when the Big Beautiful Bill was passing through Washington. Critically, nominal GDP itself has expanded dramatically, from roughly $21 trillion in 2020 to approximately $32 trillion today, inflating the denominator and making the raw deficit numbers less alarming in ratio terms.
Lyngen notes another nuance: Treasury Secretary Bessent recently altered the language in the refunding statement from references to potential coupon auction "size increases" to potential "size changes," a small word shift that has opened the possibility of actually cutting 20- and 30-year issuance and funding the gap with bill supply. "That's not our call," Lyngen clarifies, "but it has become part of the conversation. And I think that that is a fascinating shift in the narrative."
Where Support Enters and When Equities Become the Risk
On yield levels, Lyngen offers specific technical anchors. He sees 4.75 to 4.80% in 10-year yields as the range where meaningful dip-buying interest should emerge, and 5.45 to 5.50% in 30-year yields as the zone where long-term real-money investors will step in. Both levels carry a key caveat: as long as equity markets continue to print record highs, the real economy appears able to absorb higher nominal rates, sustaining the argument that markets are finding a new equilibrium at permanently higher rate levels. The risk is precisely the moment equity momentum cracks. As Rai flags in his closing remarks, whether rising long-end yields eventually trip US equity momentum is one of the two defining questions heading into Jackson Hole.
The Fed Under Warsh: On Hold and Difficult to Read
The Federal Reserve section of the conversation is equally candid. Lyngen argues that the Warsh Fed is not as different from the Powell Fed as markets have assumed, but the removal of forward guidance has introduced persistent pricing uncertainty around each individual meeting. The market currently assigns roughly a 36% probability to a September rate hike, a figure Rai and Lyngen agree feels fair given incoming data. Lyngen expects the Fed to stay on hold through the remainder of 2026. "I think that they're going to stay on hold for the rest of the year," he says, walking through why September, October, and the pre-election calendar each pose specific obstacles to action. "That leaves me comfortable with the Fed being on hold through calendar year 2026, with the first real question being, what does the world look like in Q1 2027? All else being equal, I think that we are more likely to see a rate cut in 2027 than we are a rate hike."
On monetary policy effectiveness, Lyngen raises a more structural question. With growth so dominated by the AI supercycle and the wealth effect from elevated equity prices, conventional rate policy may simply have diminished influence on the real economy. "Why would the Fed start hiking? Because if they truly believe that what's driving growth is a productivity story, and that's being added to by AI, then hiking a quarter point 3 or 4 times isn't really going to move the needle."
Jackson Hole and What Not to Expect
On the coming Jackson Hole symposium, Lyngen is deliberately measured. He does not anticipate a watershed moment for rate expectations. Warsh, he expects, will use the forum to signal continued absence of forward guidance while perhaps offering an update on the balance sheet task force or touching on longer-term monetary framework questions. "I don't think it's going to be a watershed moment for Fed expectations," he says plainly.
5 Key Takeaways for Advisors and Investors
1. The long end is not driven by one factor. The selloff in 30-year Treasuries reflects a convergence of fiscal supply pressures, AI-growth optimism pushing up real rates, and temporary crowding from hyperscaler corporate bond issuance. No single narrative fully explains the move, and any positioning built on a single explanation is fragile.
2. Breakevens are well-behaved for now, but energy is the wildcard. Thirty-year breakevens remain around 223 basis points, suggesting contained long-term inflation expectations. The risk scenario Lyngen identifies explicitly is front-month WTI crude oil trading sustainably above $110 to $115 a barrel, which could deliver the inflationary second leg the Treasury market does not currently expect.
3. The Fed is effectively on hold through 2026, with December as the first live decision. Calendar mechanics and the data backdrop make September and October difficult for any policy move. Advisors should plan for a prolonged pause, with rate cut optionality beginning to re-emerge only in 2027 if growth moderates.
4. Monetary policy may matter less than the AI supercycle and the wealth effect. Lyngen's observation that conventional rate tools may have limited traction in an economy powered by a productivity-driven AI buildout is a meaningful structural point. It argues for caution in assuming that higher rates alone will cool the economy or equity markets in the near term.
5. Watch equity momentum as the leading indicator for Treasury relief. As long as record equity prices persist, the market is signalling tolerance for current yield levels. If equities weaken materially, the Treasury market is likely to benefit from a flight to safety, compressing long-end yields from elevated levels. That transition, not Fed action, may be the more important catalyst to monitor.
Footnote:
1 Rai, Bipan, and Ian Lyngen. "Dissecting the Selloff in US Treasuries." Open Outcry Podcast, BMO Global Asset Management, 18 Aug. 2026, https://www.bmoetfs.ca/articles/the-open-outcry-podcast-dissecting-the-selloff-in-us-treasuries-august-18-2026.
