Core Viewpoint - The article discusses the unexpected rise in long-term U.S. Treasury yields following the Federal Reserve's interest rate cuts, highlighting market behaviors and concerns regarding inflation and fiscal sustainability [2][3]. Group 1: Long-term Treasury Yields - After the Federal Reserve's interest rate cuts, the 10-year U.S. Treasury yield rose to above 4.14%, while the 30-year yield exceeded 4.75% [2][3]. - The rise in yields is attributed to a "buy the expectation, sell the fact" market behavior, where investors had already priced in the rate cuts, leading to profit-taking after the actual cuts occurred [3]. - Concerns about persistent inflation have also contributed to the rise in long-term yields, as the market anticipates that inflation may not easily return to the Fed's 2% target [3]. Group 2: Risks Signaled by Bond Market - The high long-term yields signal two major risks: unsustainable fiscal deficits and skepticism about the pace of future rate cuts by the Federal Reserve [4]. - Elevated yields increase the government's interest payments on its substantial debt, potentially leading to a vicious cycle of rising deficits and inflation [5]. - The stock market has reacted positively to the rate cuts, particularly in technology stocks, while the bond market's concerns about inflation have pushed yields higher [4][5]. Group 3: Future Outlook on Yields - The article suggests that the downward space for long-term Treasury yields may be limited, with the Fed's projections indicating a cautious approach to future rate cuts [7][8]. - The Fed's median forecast for the federal funds rate suggests a gradual decline, with long-term rates likely remaining above 3% [7][8]. - The market is adapting to a "higher for longer" interest rate environment, necessitating a reassessment of asset allocations under this new paradigm [10].