Quora Answer: How are You Factoring Rising Bond Yields into Your Investment Strategy?

The following is my answer to a Quora question: “How are you factoring rising bond yields into your investment strategy?”

The question asks how rising bond yields factor into investment strategy.  The more useful question is: rising yields in which market, held by whom, for how long, and against what alternative?  The answer changes depending on those parameters.

The US 10-year Treasury yield has traded above 5 per cent for extended periods since October 2023 — the first time since 2007.  The CBO projects net interest payments reaching US$2.8 trillion annually by the early 2030s.  US gross debt stands at US$36 trillion.  The federal deficit for fiscal year 2026 was US$2 trillion.  US$10 trillion in publicly held debt matures within the next twelve months and must be rolled over at current market rates.  This is not a temporary dislocation.  It is a structural deterioration.  The investment response must reflect that.

The AI Debt Cliff

One compounding factor receives insufficient attention: the AI capital expenditure cycle has created a debt cliff that will collide with the rate environment within the next two to three years.  Goldman Sachs estimated US$200 billion in annual AI infrastructure capital expenditure across the major technology companies in 2025.  Microsoft, Alphabet, Amazon, and Meta collectively spent US$246 billion in capital expenditure in 2025 — the majority directed toward data centres, GPU clusters, and AI infrastructure.  The monetisation of this investment, at current AI adoption rates, is a fraction of the capital deployed.

The debt financing component of this buildout sits on corporate balance sheets at interest rates that are serviceable today but compress margins as refinancing cycles approach.  Microsoft’s long-term debt is US$42 billion.  Amazon’s is US$58 billion.  These are manageable.  The smaller AI infrastructure companies — the data centre operators, the GPU cloud providers, the specialised chip designers — carry leverage at multiples that assume continued revenue growth at rates that the adoption curve may not support.

When Goldman Sachs published a report in June 2024 questioning whether AI would deliver returns commensurate with the investment, the technology sector dismissed it.  The question has not been answered.  The debt service obligation arrives regardless.  Against this backdrop, the investment strategy for a longer horizon — ten years or more — reduces US Treasury exposure, avoids the crowded AI infrastructure trade, and builds positions in three areas where the structural tailwinds are independent of the US fiscal trajectory.

Strategy One: Asian Investment-Grade Credit and Sovereign Debt

The diversification case away from US Treasuries runs toward Asian investment-grade credit and selected Asian sovereign debt — not as a short-term trade, but as a structural allocation reflecting the divergence in fiscal trajectories.  Singapore’s 10-year SGS yield is 2.42 per cent — significantly below the US equivalent.  This reflects Singapore’s fiscal surplus, its AAA credit rating, and the MAS’s credible monetary framework.  For a Singapore-domiciled investor, SGS represents the domestic risk-free rate.  The yield differential with US Treasuries reflects genuine credit quality divergence, not temporary market dislocation.

Japan’s government bond market presents a different case.  The Bank of Japan’s normalisation from negative rates has moved JGB yields to levels not seen in over a decade — the 10-year JGB yield is 1 per cent.  In yen terms, this is a meaningful positive real yield in an economy where inflation is 2 to 2.5 per cent.  For a hedged international investor, the carry is modest, but the credit quality — Japan maintains an A+ sovereign rating — is substantially better than the US trajectory implies.

South Korea, India, and Indonesia have issued sovereign debt at yields that reflect their respective growth trajectories rather than the fiscal deterioration of developed market sovereigns.  India’s 10-year government bond yields 6.7 per cent in rupee terms.  Against an inflation rate of 4.5 per cent, this represents a positive real yield in a US$3.5 trillion economy growing at 6.5 per cent annually.  JPMorgan’s inclusion of Indian government bonds in its GBI-EM Global Diversified Index from June 2024 has brought US$25 billion in passive inflows and deepened the market’s institutional base.

The corporate credit layer within Asian investment-grade — Singapore REITs, Hong Kong blue chips, Japanese investment-grade issuers — offers yield pickup over sovereigns with credit quality that the domestic fiscal environment supports rather than undermines.  The anecdote that illustrates this allocation: the Norway Government Pension Fund Global — the world’s largest sovereign wealth fund at US$2.3 trillion — announced in 2026 its intention to reduce its US Treasury allocation from 34.1 per cent to 21.9 per cent of its fixed income benchmark.  A fund managing US$2.3 trillion, with the deepest resources and most sophisticated analysis in global asset management, is reducing its US government debt exposure.  This is not a contrarian position.  It is the institutional consensus forming in real time.

Strategy Two: Real Assets with Non-Dollar Revenue Streams

The second strategy positions against dollar debasement through real assets whose revenue is denominated in currencies or commodity units not directly correlated with US fiscal policy.  Gold is the most straightforward instrument.  Gold overtook US Treasuries in total central bank reserve holdings in early 2026 — the first time this has occurred since the Bretton Woods era.  Central banks globally purchased over 1,000 tonnes of gold annually for three consecutive years through 2025.  The People’s Bank of China, the Reserve Bank of India, the National Bank of Poland, and the Central Bank of Turkey have been among the largest purchasers.

Gold does not yield.  In a 5 per cent yield environment, this is frequently cited as a cost.  The counterargument: gold does not default, cannot be sanctioned, cannot be debased through monetary policy, and has appreciated 35 per cent between January 2024 and October 2026.  The opportunity cost calculation changes when the alternative is US Treasuries, whose real yield is compressed by fiscal risk premium and whose capital value is at risk from further yield increases.

Infrastructure assets in non-dollar economies — toll roads, ports, utilities, and pipelines in Southeast Asia, India, and the Gulf — generate revenue in local currencies from essential services with inelastic demand.  The Changi Airport Group’s passenger volumes, the Port of Singapore’s container throughput, the India National Investment and Infrastructure Fund’s toll road portfolio — these assets generate cash flows that are structurally independent of the US fiscal position.

The blue carbon credit market — which Red Sycamore is building infrastructure for in the Indo-Pacific — represents a longer-duration real asset position.  Compliance carbon credits in the EU ETS, Singapore’s carbon tax framework, and China’s national ETS are priced by regulatory mandate rather than by capital market conditions.  The EU ETS traded €751 billion in 2023.  The structural tightening of the cap — reducing the supply of allowances annually — creates a price appreciation mechanism that is independent of interest rate cycles.  The UNEP’s Emissions Gap Report 2026 confirmed an 18 per cent emissions reduction requirement by 2030.  The compliance carbon market is the instrument through which private capital is mobilised toward this target.  At current deployment rates, it is structurally undersupplied.  An undersupplied compliance market with a legally mandated demand curve and a tightening annual cap is a real asset with a price appreciation mechanism that no central bank decision affects.

Strategy Three: Structured Insurance-Linked Capital Preservation

The third strategy is the one most frequently overlooked by investors focused on market instruments: the structured deployment of capital into insurance-linked vehicles that provide growth with downside protection and a contractual floor.  An Indexed Universal Life structure — specifically the Singapore-domiciled Jumbo IUL within the AIA participating fund architecture — provides exposure to equity index growth with a contractual zero-per-cent annual floor.  The AIA Singapore participating fund has generated a 10-year average return of 4.97 per cent.  In an environment where the 6-month Singapore T-bill yields 1.88 to 1.92 per cent and the 10-year SGS yields 2.42 per cent, this return differential is substantial.

The structural advantage in a rising yield environment is the floor.  When bond markets sold off in Q3 2026 — the NBIM reported a 3.5 per cent fixed income return for the quarter — the IUL structure’s capital value did not decline.  The floor held.  The portfolio did not require recovery from a negative base.  The policy loan mechanism provides the leverage component: up to 90 per cent of accumulated cash value is accessible via contractual policy loans at fixed rates, while the underlying capital continues compounding.  A US$5 million premium commitment, compounding at 4.97 per cent over ten years, produces US$8.1 million in accumulated cash value.  A policy loan of US$4 million against this value — at 4 per cent loan interest — leaves the underlying capital compounding uninterrupted while deploying US$4 million into the Asian credit or real asset allocations described above.  One dollar does the work of two.  This is not financial engineering.  It is the contractual architecture of a product specifically designed for capital preservation and efficient deployment in a volatile rate environment.

The Summary Position

Rising US bond yields reflect a fiscal deterioration that is structural, not cyclical.  The investment response is not to buy more US Treasuries because the yield is attractive — it is to reduce US Treasury exposure, build Asian credit and sovereign debt positions that reflect genuinely different fiscal trajectories, hold real assets with non-dollar revenue streams including gold and infrastructure, and deploy a portion of capital into insurance-linked structures that provide compounding with a contractual floor.

The investors who hold this position for ten years will not be managing a portfolio through a US fiscal crisis.  They will be observing it from a position of structural insulation.  The investors who continue to hold US Treasuries at 5 per cent because the nominal yield looks attractive should ask one question: if Norway’s sovereign wealth fund — with US$2.3 trillion, the world’s most sophisticated asset management infrastructure, and no political pressure to reduce US government debt exposure — is reducing its Treasury allocation, what does it know that the retail investor does not?  The answer is not complicated.  It is merely inconvenient.

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Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code