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

Riba’ & the Gold Standard Myth

A certain breed of Muslim revivalist has built an entire cottage industry on a single confident mistake.  The claim runs like this: fiat currency is inherently riba’; the only shari’ah-compliant money is gold and silver; and any Muslim who holds a bank account, draws a salary in Singapore dollars, or pays tax to IRAS stands complicit in a global system of institutionalised usury.  It sounds principled.  It sounds like courage.  It is, in fact, bad fiqh dressed up as piety, and it collapses the moment anyone opens a hadith collection instead of a YouTube transcript.

What Riba’ Means

Riba’ is not a vague synonym for “unjust economics.”  It has a legal definition built from two distinct categories.  The first is ربا الفضل, riba’ al-fadhl, excess taken in an exchange of the same commodity type, such as trading unequal quantities of gold for gold.  The second is ربا النسيئة, riba’ an-nasiyyah, the riba’ of deferment, the pre-Islamic practice of doubling a debt when the debtor could not repay on time.  This second category is the one the Qur’an condemns:

وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا

Allah has permitted trade and forbidden riba’.

Qur’an, Surah al-Baqarah:275 (‘Abdullah Yusuf ‘Ali translation)

يَا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا الرِّبَا أَضْعَافًا مُّضَاعَفَةً

O you who believe!  Devour not usury, doubled and multiplied.

Qur’an, Surah Ali ‘Imran:130 (‘Abdullah Yusuf ‘Ali translation)

Neither ayat mentions gold.  Neither ayat mentions a currency standard.  Both describe a transactional wrong: taking more than was lent, or more than was due, where that excess constitutes zhulm, an injustice extracted from the borrower.  A price for deferred payment, agreed openly and reflecting the cost and risk of extending capital over time, is not automatically riba’ merely for compounding.  Bay’ bi tsaman ajil, a sale at a deferred price higher than the cash price, is trade, permitted by the same ayah that forbids riba’.  The distinction the Qur’an draws is not between simple and compound arithmetic.  It is between a legitimate return priced into a trade and an exploitative increase extracted from a debtor who has no bargaining power left.  That distinction matters, because the gold standard crowd routinely treats “riba’” and “monetary inflation caused by central banking” as interchangeable terms.  They are not the same thing.  Conflating them is the first error, and everything downstream inherits the mistake.

The Six Ribawi Commodities

The clearest operational guidance on riba’ in exchange comes from ahadits, not from the Qur’an.  The most cited narration is transmitted on the authority of Abu Sa’id Sa’d ibn Malik al-Khudri:

الذَّهَبُ بِالذَّهَبِ، وَالْفِضَّةُ بِالْفِضَّةِ، وَالْبُرُّ بِالْبُرِّ، وَالشَّعِيرُ بِالشَّعِيرِ، وَالتَّمْرُ بِالتَّمْرِ، وَالْمِلْحُ بِالْمِلْحِ، مِثْلاً بِمِثْلٍ، يَداً بِيَدٍ، فَمَنْ زَادَ أَوِ اسْتَزَادَ فَقَدْ أَرْبَى، الآخِذُ وَالْمُعْطِي فِيهِ سَوَاءٌ

“Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, hand to hand.  Whoever adds or asks for more has engaged in riba’, the taker and the giver being equal in that.”

Swahih Muslim, Kitab al-Muswaqat, hadits 1584.

A parallel narration from Abu Bakra Nufay ibn al-Harits ats-Tsaqafi states:

لَا تَبِيعُوا الذَّهَبَ بِالذَّهَبِ إِلَّا سَوَاءً بِسَوَاءٍ، وَلَا تَبِيعُوا الْوَرِقَ بِالْوَرِقِ إِلَّا سَوَاءً بِسَوَاءٍ

“Do not sell gold for gold except equal for equal, and do not sell silver for silver except equal for equal.”

Swahih al-Bukhari, Kitab al-Buyu’, hadits 2177.

This part is not controversial.  It is agreed upon across the madzahib of the Ahl as-Sunnah wa al-Jama’ah.  Gold and silver sit among six named commodities whose exchange is governed by strict parity rules.  The zakat nisab thresholds reinforce the same point: twenty matsaqil of gold, eighty-five grammes, and two hundred darahim of silver, 595 grammes.  These figures are textually well-established, drawn from ahadits and confirmed by centuries of juristic consensus.  Nobody is disputing any of that.

Why Gold at All?

The classical fuqaha’ asked the obvious question: why do gold and silver, specifically, trigger these strict exchange rules, when wheat and salt also appear in the same ahadits?  The majority Hanafi and Maliki answer is ثَمَنِيَّة, tsamaniyyah, the quality of functioning as money.  Gold and silver were restricted not because they are shiny metals, but because they served as the price mechanism of the economy, the yardstick against which everything else was valued.

If the ruling attaches to the function of money rather than to the substance of metal, then the ruling travels by qiyas to whatever performs that function today.  Paper currency, bank credit, even digital balances inherit the ribawi rules automatically, the moment they function as ثَمَن, tsaman, as price and medium of exchange.  The International Islamic Fiqh Academy of the Organisation of Islamic Cooperation reached this conclusion in its mid-1980s ruling on paper money, classifying it as ثَمَن اصْطِلَاحِي, tsaman iswthillahi, customary money, carrying the full weight of riba’ prohibitions.  AAOIFI’s shari’ah standards follow the same reasoning.

Islam did not need to wait for a return to gold coinage to apply riba’ to fiat currency.  It already applies.  A Singapore dollar loan structured to extract an unjust increase from a borrower is riba’ today, under the standing Hanafi analogy, with no gold required.  The currency is irrelevant.  The zhulm is the operative element, not the arithmetic.  The problem the gold standard movement correctly identifies, interest-bearing debt and reckless monetary expansion, has an existing shari’ah remedy.  That remedy is enforcing the riba’ prohibition properly.  It is not abolishing the currency.

Muhyi ad-Din Abu Zakariyya Yahya ibn Sharaf an-Nawawi, writing from within the Shafi’i school, reached a compatible conclusion through different reasoning, holding that whatever ‘urf, custom, establishes as a valid medium of exchange may function as currency, provided the ribawi rules apply correctly to it.  Abu Hanifah Nu’man ibn Tsabit and Abu ‘Abdullah Malik ibn Anas treated gold and silver as the economy’s natural monetary anchor in their own era, for the entirely unmysterious reason that gold and silver were the only widely trusted media of exchange available to them.  Neither imam left behind a ruling binding all future Muslims to metallic currency for all time.  They described the economy they lived in.  They did not and could not legislate against economies that had not been invented yet.

No Ahadits Addresses the Gold Standard

This brings us to the anachronism at the centre of the whole movement.  The gold standard, as a defined monetary policy framework in which a currency unit is fixed to and convertible into a specified weight of gold, did not exist until the nineteenth century.  Britain formalised it in 1821.  Wider international adoption followed later in the century.  No hadits addresses a concept that would not be invented for well over a millennium.  Claiming that Prophet Muhammad endorsed the gold standard as modern economists or Islamic monetary reformers define it is not interpretation.  It is invention, retrofitted onto a text that never discusses central banking, convertibility, reserve ratios, or monetary policy at all.  What the texts address is narrower: the prohibition of excess in exchanging like commodities, and the prohibition of charging more on a deferred debt.  Dressing that up as a mandate for a specific nineteenth-century monetary architecture is not scholarship.  It is marketing.

The Manufactured Tradition

Imran Nazar Hosein, the Trinidadian eschatology writer, has spent decades arguing that the gold dinar and silver dirham represent an Islamic obligation, and that fiat currency is a deliberate instrument of riba’ engineered by a global financial elite.  The Murabitun World Movement, founded by Abd al-Qadir as-Sufi, born Ian Dallas, and shaped on the monetary side by Umar Ibrahim Vadillo, built an entire da’wah campaign and a series of private mints around the same premise.

Both positions share the same structural flaw.  They treat a defensible economic preference, a nostalgia for metallic money, as though it were a binding textual ruling of equal weight to the prohibition of riba’ itself.  It is not.  It is a modern ijtihad, built on selective reading, and it fails the moment one asks a classically trained faqih to identify the nasw, the textual proof, mandating gold-backed currency as obligatory.  There is none.  There is a hadits about parity in exchange.  There is a hadits about zakat thresholds.  There is no hadits about central bank reserve policy.

The Kelantan Experiment

Ideas have consequences, and this one had a public test.  In 2010, the Kelantan state government in Malaysia, with input from figures connected to the Murabitun gold dinar project, attempted to introduce gold dinar and silver dirham coins into limited circulation, including for certain state fees.  The scheme ran directly into Malaysia’s federal constitutional structure, under which currency issuance belongs to the federal government and Bank Negara Malaysia, not individual states.  Merchant acceptance stayed negligible outside a small circle of ideological supporters.  Gold’s daily price volatility made it a poor unit of account for ordinary commerce, the very flaw that drove economies toward standardised fiat currency in the first place.  The initiative survives today mainly as a symbolic curiosity and a cautionary tale, not as a functioning monetary system.  That is what happens when theology gets ahead of economics, and when neither gets checked against the actual texts.

Islamic finance did not evolve in a vacuum.  It evolved under constant pressure from a retail and scholarly audience steeped in exactly the suspicion of fiat money and conventional banking structures described above.  Shari’ah boards, product structurers, and bank legal teams spent three decades building products to satisfy a constituency that treats any resemblance to a conventional loan as spiritually radioactive, whether the underlying economics involve riba’ at all.  The result is an industry that optimises for the appearance of difference rather than the substance of compliance, and the client pays for that theatre.

The Tawarruq Trap

Consider how a typical shari’ah-compliant personal financing facility works.  The bank does not simply lend you money and charge interest, because that would be “riba’”.  Instead, the bank buys a quantity of a commodity, often London Metal Exchange aluminium or a similar traded metal, sells it to you on deferred payment at a mark-up, and then arranges for you, through an agent, to immediately resell that same commodity to a third party for cash.  You walk away with cash in hand and a debt obligation to the bank for a higher deferred amount.  This structure is called tawarruq, and in its organised, bank-intermediated form it is called tawarruq munazhzham.

Strip away the commodity paperwork and the economic outcome is identical to an interest-bearing loan.  You receive a sum of cash today.  You repay a larger sum later.  The only difference is that three additional legal steps, and three additional sets of transaction costs, have been inserted between you and the money, purely so the product can be labelled shari’ah-compliant.  Professor Mahmoud Amin El-Gamal of Rice University coined the term “shari’ah arbitrage” for this pattern: the systematic use of hiyal, legal stratagems, to reconstruct conventional financial products under an Islamic label, at higher cost, with no change in underlying economic risk.  The Organisation of Islamic Cooperation’s Fiqh Academy has repeatedly expressed discomfort with organised tawarruq, and several fiqh scholars, including members of AAOIFI’s own governance structure, have warned that the practice edges uncomfortably close to the very riba’ it claims to avoid.

Why does an industry keep selling a product its own scholars distrust?  Because the revivalist insistence that any direct cash loan at interest is categorically impermissible, full stop, with no room for nuance on intent or structure, has pushed banks into ever more elaborate workarounds rather than toward risk-sharing alternatives.  The gold-fixated purists demanded moral distance from conventional banking.  The industry gave them distance on paper and kept the economics identical underneath.  Everybody lost except the commodity brokers collecting a fee on every leg of the transaction.

Screening Out Growth

The same anxiety shows up in Islamic equity funds, and it costs investors real money.  Shari’ah screening methodologies, including those used by the Dow Jones Islamic Market Index family and comparable AAOIFI-based screens, exclude entire sectors outright: conventional banks, insurers, and companies whose interest-bearing debt or interest income exceeds a fixed threshold relative to market capitalisation.  The intent is sound.  The execution has a cost nobody likes to advertise.

Financial services has, for extended periods across multiple market cycles, been one of the larger contributors to broad equity index returns, simply by weight of sector size.  An Islamic equity fund constructed to exclude the entire conventional banking and insurance sector by design forgoes that contribution entirely, not because the fund manager made a bad call, but because the screening rule made the call for them before a single stock was analysed.  The same funds, chasing low-leverage compliance, frequently end up concentrated in commodity producers, real estate, and asset-heavy industrials, sectors that carry their own cyclicality and correlation risk, producing portfolios that are less diversified, not more prudent.  This is not a conspiracy.  It is arithmetic.  Narrow your universe by ideology first and optimise for return second, and you should expect the return to suffer for it.  Clients bought “shari’ah-compliant” and received “concentrated,” and nobody explained that trade-off to them in the fund factsheet.

The Genneva Malaysia Warning

If you want to see where gold-fixated theology meets real financial harm, do not look to an obscure ahadits debate.  Look at Genneva Malaysia Sdn. Bhd.  The company marketed a gold buy-back investment scheme through the early 2010s, promising investors a fixed monthly “rebate” for purchasing physical gold that the company would later repurchase at a premium, a structure dressed in language designed to appeal to Muslim investors wary of conventional interest-bearing instruments.  Bank Negara Malaysia and the Securities Commission Malaysia investigated the scheme and determined it functioned as unauthorised deposit-taking, structurally indistinguishable from the interest-bearing products its own marketing implicitly condemned, just paid out of new investor money rather than productive returns.  The scheme was frozen in 2012, directors faced prosecution, and investors who had been told gold was the pious alternative to fiat found their capital tied up in a collapsed scheme instead.  Gold did not protect them.  The promise of moral purity sold the lie that made them stop asking how a “rebate” could be funded without being, functionally, interest.

That is what happens when an industry, or a credulous retail public, treats “it involves gold” as a substitute for actual shari’ah governance, actual audited reserves, and actual regulatory oversight.  The gold dinar movement did not cause Genneva.  But it built the appetite that Genneva exploited, and it continues to build that same appetite today, every time someone with a large social media following tells Muslim investors that fiat currency itself is the enemy and gold is automatically virtuous.

What Real Reform Would Look Like

None of this means the underlying grievance is baseless.  Central bank monetary expansion does erode purchasing power.  Consumer debt culture does trap households.  Those are real problems, and Islam has real tools for them: enforce the riba’ prohibition on actual interest-bearing lending, wherever it occurs, in whatever currency it is denominated.  Expand genuine mudharabah and musharakah, profit-and-loss-sharing structures, rather than defaulting to debt-like murabahah and tawarruq because risk-sharing requires banks to underwrite real commercial risk instead of simply repricing a loan with extra paperwork.  Hold shari’ah boards to enforcing substance over form, so a transaction that looks, walks, and repays like a loan is not laundered through three unnecessary legal steps and called compliant.

Equity-based, risk-sharing financing remains a stubbornly small share of total Islamic banking assets worldwide, against overwhelming dominance by debt-like instruments, a pattern repeatedly documented across Islamic finance scholarship for more than two decades.  That imbalance is not an accident of market preference.  It is the direct product of an industry structured to placate a theological anxiety about fiat currency and interest optics, rather than one built from first principles around genuine partnership and shared risk.  Fix the theology, and the products get better, the costs come down, and the returns improve.  Keep chasing gold coins and commodity murabahah paperwork, and the industry keeps producing expensive imitations of the very system it claims to reject.

The ruling on riba’ is well-attested, and survivable without reinventing the currency you were born into.  It is not, however, survivable if an entire industry keeps building products to flatter a mistake instead of confronting it.  The current industry is built on ignorance and incredulity.

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

Quora Answer: How Long Can the Market Absorb a 10-Year Treasury Yield above 5%?

The following is my answer to a Quora question: “How long can the market absorb a 10-year Treasury yield above 5%?”

The question asks how long the market can absorb a 10-year Treasury yield above 5 per cent.  The market is absorbing it right now.  The market has been absorbing it since October 2023, when the 10-year yield first breached 5 per cent for the first time since 2007.  Auctions continue to clear.  Foreign central banks continue to bid.  Primary dealers continue to absorb what the market does not.

The market is not the problem.  The market is the messenger.  The question should be: how long can the US economy tolerate the conditions that a 5 per cent 10-year yield creates?  That is a different question with a less comfortable answer for Americans.

What a 5 Per Cent 10-Year Yield Does

The 10-year Treasury yield is not merely a government borrowing cost.  It is the reference rate for the US economy.  Mortgage rates, corporate borrowing costs, student loan rates, auto loan rates, and the discount rates used to value every financial asset in the country are priced off it.

The 30-year fixed mortgage rate tracks 170 to 200 basis points above the 10-year Treasury yield.  At a 10-year yield above 5 per cent, the 30-year mortgage rate is 6.7 to 7 per cent.  The National Association of Realtors reported in 2023 that housing affordability reached its worst level since 1984 at these rates.  A median-priced US home at a 7 per cent mortgage rate requires 43 per cent of the median household income to service — well above the conventional 28 per cent threshold for housing affordability.

Housing construction has contracted.  Existing home sales collapsed to their lowest level in three decades in late 2023 because homeowners with 3 per cent mortgages from 2020 and 2021 declined to sell and take on new mortgages at 7 per cent.  The housing market did not crash.  It froze.  A frozen housing market is economically damaging in a different way — it prevents the labour mobility and capital reallocation that a functioning housing market provides.

Corporate borrowing costs have risen commensurately.  Investment-grade corporate bond yields moved from 2.5 per cent in 2021 to 5.5 to 6 per cent in 2023 and beyond.  High-yield corporate debt — the funding source for private equity portfolio companies, leveraged buyouts, and growth-stage businesses — moved from 4.5 per cent to 8.5 to 9 per cent.

The companies that borrowed at 2021 rates face refinancing at 2024 and 2025 rates.  The Leveraged Commentary and Data database estimated that US$1.8 trillion in leveraged loans and high-yield bonds required refinancing between 2023 and 2026.  Each refinancing at current rates increases the debt service burden on companies whose revenue growth has not kept pace with the rate increase.  Some will manage.  Some will not.

The Federal Debt Service Problem

The most acute consequence of sustained 5 per cent 10-year yields is the US government’s own debt service cost — which has now overtaken defence spending to become the third-largest line item in the federal budget, behind only Social Security and Medicare.  Net interest payments rose 8 per cent to US$1.05 trillion in fiscal year 2026.  Gross interest costs reached US$1.36 trillion at an average interest rate of 3.53 per cent — more than double the average rate in 2021.  US$10 trillion in publicly held debt matures within the next twelve months and must be rolled over at current market rates.

The arithmetic is straightforward and unpleasant.  The existing US$36 trillion in gross debt, rolled over progressively at 5 per cent rather than the blended 3.53 per cent currently on the books, increases annual interest expense by US$530 billion.  The Committee for a Responsible Federal Budget estimated that if yields remain one percentage point above CBO projections, interest costs reach US$2.8 trillion — 5.9 per cent of GDP — by the end of the decade.

US$2.8 trillion in annual interest expense on a tax base of US$5.4 trillion means more than half of federal revenue is consumed by debt service before a single dollar is spent on defence, healthcare, social security, infrastructure, or any other government function.  This is not a theoretical risk.  It is the trajectory of current policy at current rates.

Congressional Budget Office Director Phillip Lee Swagel confirmed in October 2026 that stabilising the debt-to-GDP ratio at current yield levels requires real GDP growth of 5 to 6 per cent.  Current real GDP growth is 2.2 per cent.  The gap between what is required and what is occurring is not closable through growth alone.

The Pension and Insurance Sector

A 5 per cent 10-year yield has one beneficiary in the private sector: defined benefit pension funds and insurance companies, whose liability valuations decline as discount rates rise.  The funded status of US corporate pension plans improved significantly as rates rose from 2022 onward — moving from 87 per cent funded on average in 2021 to 103 per cent funded by late 2023.  It is also a one-time adjustment, not a permanent structural gain.  Once pension funds have matched their liability duration with assets at current yields, the benefit of further rate increases is marginal.  The ongoing cost to the rest of the economy — mortgage markets, corporate borrowing, federal debt service — is not one-time.  It compounds.

The public pension sector faces a different problem.  State and local government pension funds in the United States have aggregate unfunded liabilities estimated at US$1.3 trillion under governmental accounting standards and significantly more under market-rate discount assumptions.  These funds were assuming 7 to 7.5 per cent returns in their actuarial models.  Higher Treasury yields help on the liability side but pressure the equity valuations that drive the asset side.

The International Dimension

A sustained 5 per cent 10-year Treasury yield changes the global capital flow picture in ways that compound the domestic pressure.  Emerging market economies — which borrowed heavily in dollars during the 2020 and 2021 low-rate period — face dollar-denominated debt service obligations that increase in local currency terms as the dollar strengthens on the back of high US rates.  The IMF’s 2026 World Economic Outlook identified 60 per cent of low-income countries as in debt distress or at high risk of it.  This is partly a consequence of dollar strength driven by US rate policy.

The carry trade unwind — investors who borrowed in low-rate currencies to invest in higher-yielding assets — creates periodic volatility episodes as the rate differential shifts.  Japan’s rate normalisation, occurring simultaneously with sustained US yields above 5 per cent, compresses the yen-dollar carry trade that has funded a significant portion of global risk asset purchases for the past decade.  More fundamentally, sustained high US rates attract capital flows into dollar assets — which appreciates the dollar, reduces US export competitiveness, and widens the current account deficit that already stands at US$800 billion to US$1 trillion annually.  The trade deficits that have been a source of political friction domestically and internationally are structurally widened by the rate policy required to manage inflation.

The Long-Term Strategic Implications

The strategic implications of sustained 5 per cent 10-year yields, unaddressed, are not abstract.  The first is the progressive crowding out of productive federal investment.  Defence spending, infrastructure investment, research and development, and education — all compete with debt service for a share of federal revenue.  As debt service consumes an increasing share of revenue, discretionary spending contracts.  The federal government’s capacity to invest in the conditions of long-term economic competitiveness — the scientific research that produced the internet, the GPS, the COVID-19 vaccine development infrastructure — shrinks in direct proportion to the expansion of debt service.

The second is the structural constraint on monetary policy.  A Federal Reserve that attempts to lower rates to stimulate a slowing economy faces pressure from bond markets that demand higher rates to absorb the Treasury issuance required to finance the deficit.  The Federal Reserve’s independence becomes nominally intact but practically constrained — it can lower the Federal Funds Rate, but if the bond market reprices 10-year yields upward in response to fiscal deterioration concerns, the rate cut’s economic stimulus effect is offset or eliminated.

The third is the progressive erosion of dollar reserve currency status.  Central banks globally have reduced the dollar’s share of foreign exchange reserves from 71 per cent in 1999 to 56 per cent today.  The weaponisation of dollar assets against Russia in 2022 accelerated this diversification.  Sustained fiscal deterioration — visible in a debt service cost that exceeds defence spending — provides additional motivation for reserve diversification.  Gold overtook US Treasuries in total central bank reserve holdings in early 2026.  The trend is structural.

The fourth — and most consequential in the long run — is the intergenerational transfer of obligation.  The debt that produces the US$1.05 trillion in annual interest expense was mostly accumulated in decisions made by elected governments between 2000 and 2025.  The service cost falls on taxpayers for decades.  The infrastructure, education, and research investment foregone in favour of debt service reduces the productive capacity of an economy that the next generation will inherit.

The Truth

The market will absorb 5 per cent 10-year Treasury yields for as long as there is no credible alternative to US Treasuries as the world’s primary safe-haven asset.  That condition currently holds.  It is not permanent.  The reserve currency privilege that allows the United States to borrow at rates lower than its fiscal position would otherwise warrant — the “exorbitant privilege” that French Finance Minister Valéry Giscard d’Estaing described in 1965 — depends on the rest of the world’s confidence in US institutional stability and fiscal sustainability.  That confidence is not unlimited.  It is not unconditional.  And it has never been tested by the combination of a US$36 trillion debt, a US$2 trillion annual deficit, US$1.05 trillion in annual interest expense, and a political system that has demonstrated consistent inability to address any of the three.

The market can absorb 5 per cent yields indefinitely.  The US economy cannot absorb their consequences indefinitely.  The question is not whether the breaking point exists — it is where it sits and how much runway remains before the distance to it becomes visible to the people currently pretending it does not.

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

Quora Answer: How Does Inflation in a Fiat Currency System Compare to Deflation in a Gold Standard System, & Why is One Considered More Manageable?

The following is my answer to a Quora question: “How does inflation in a fiat currency system compare to deflation in a gold standard system, and why is one considered more manageable?”

This is a bullshit question.  The question frames inflation under a fiat currency system and deflation under a gold standard as two comparable policy choices, between which economists and policymakers must select the more manageable option.  This framing is wrong.  It assumes the gold standard is a viable alternative to fiat currency in a modern economy — an assumption that the historical record does not support and that serious monetary economists have long since abandoned.  The comparison is not between two equally plausible monetary frameworks.  It is between a system that exists and functions, however imperfectly, and a system that was tried, failed, and was abandoned for documented reasons.

What are Inflation and Deflation?

Inflation is the sustained increase in the general price level — the purchasing power of money declining over time.  Under a fiat currency system, the central bank controls the money supply and sets interest rates to manage inflation within a target range.  The US Federal Reserve, the European Central Bank, and the Monetary Authority of Singapore all target 2 per cent annual inflation — a figure chosen because modest inflation is compatible with economic growth, full employment, and manageable debt dynamics.

Deflation is the sustained decrease in the general price level — the purchasing power of money increasing over time.  This sounds benign.  It is not.  Deflation produces a well-documented economic pathology: when prices are falling, consumers defer purchases because the same money will buy more tomorrow than today.  Businesses facing falling prices reduce investment and employment.  Wages fall.  Debt burdens increase in real terms because the nominal debt obligation remains fixed while the value of money rises.  The economy contracts.

Japan’s experience between 1991 and 2013 — two decades of near-zero inflation and periodic deflation following the collapse of its asset price bubble — is the most extensively studied modern case.  Real GDP growth averaged 0.8 per cent annually during this period.  The Nikkei 225, which peaked at 38,957 in December 1989, did not recover to that level for 34 years.  The Bank of Japan cut interest rates to zero and eventually introduced quantitative easing because deflation was so damaging and so difficult to escape once entrenched.  Japan did not operate under a gold standard.  The point is that deflation, even in a modern managed economy with full central bank toolkit availability, produced decades of stagnation.  The gold standard would have provided none of the tools that allowed Japan to eventually exit deflation.

The Gold Standard’s Historical Record

The gold standard was not abandoned because economists or politicians disliked it philosophically.  It was abandoned because it failed — repeatedly and catastrophically — to manage economic crises.  The classical gold standard — under which major economies fixed their currencies to gold at defined parities — operated from 1870 to 1914.  It produced a period of relative monetary stability in developed economies.  It also produced periodic banking panics — 1873, 1884, 1890, 1893, 1896, 1907 — because the money supply could not expand to meet liquidity crises.  The Federal Reserve was established in 1913 partly in response to the 1907 panic, because a system without a lender of last resort was inadequate.

The gold standard’s most catastrophic failure was the Great Depression.  Between 1929 and 1933, US GDP fell 30 per cent.  Unemployment reached 25 per cent.  The money supply contracted by one-third because the Federal Reserve, constrained by gold reserve requirements, could not expand the money supply to meet the liquidity crisis.  Banks failed.  Credit contracted.  Prices fell.  The debt deflation spiral that Professor Irving Fisher of Yale University described in his 1933 paper, The Debt-Deflation Theory of Great Depressions, consumed the economy with no mechanism for escape.  The countries that abandoned the gold standard earliest recovered fastest.  The United Kingdom left the gold standard in September 1931.  Its economy began recovering almost immediately thereafter.  The United States left the gold standard domestically in 1933 — President Franklin Delano Roosevelt suspended gold convertibility and devalued the dollar — and the economy began recovering.  The countries that clung to gold — France, Germany, Belgium, the Netherlands — suffered longer and deeper depressions.

Professor Barry Julian Eichengreen of the University of California, Berkeley — whose research on the gold standard and the Great Depression is the most authoritative in the field — documented this relationship comprehensively in Golden Fetters: The Gold Standard and the Great Depression, 1919-1939 (1992).  The title is not subtle.  The gold standard was a constraint that prevented the monetary policy response that recovery required.

Why the Comparison is False

The question compares inflation in a fiat system with deflation in a gold standard system as if both are policy-adjustable variables.  They are not symmetrically adjustable.  Under a fiat currency system, inflation is manageable because the central bank has tools to address it.  Interest rate increases reduce the money supply, cool demand, and bring inflation down.  The Federal Reserve raised the Federal Funds Rate from near zero to 5.25 per cent between March 2022 and July 2023, bringing US inflation from 9.1 per cent — a 40-year high — down to approximately 3 per cent by mid-2023.  The tool worked.  It was painful.  It was deliberate.  It worked.

Under a gold standard, deflation is not manageable in the same way because the tools do not exist.  The money supply is constrained by gold reserves.  Interest rates cannot be reduced below the rate required to maintain the gold peg without triggering capital outflows and gold reserve depletion.  The central bank cannot expand the money supply to break the deflationary spiral.  The economy must deflate until prices have fallen far enough that competitiveness is restored — a process that, as the 1930s demonstrated, takes years and produces enormous human suffering.  The fiat currency system permits policy error and policy correction.  The gold standard permitted policy error and offered no correction mechanism beyond austerity and waiting.

The Argument for Gold

The gold standard’s contemporary advocates make a legitimate point: fiat currency systems permit governments to inflate away their debts, debase their currencies, and transfer wealth from savers to debtors through monetary expansion.  This criticism is accurate.  The purchasing power of the US dollar has declined by 97 per cent since the Federal Reserve was established in 1913.  A dollar in 1913 bought what US$30 buys today.  This is a real cost.  It is also a cost that the holders of fiat money have accepted in exchange for living in economies that survived the Great Depression, the Second World War, the 2008 financial crisis, and the COVID-19 pandemic without the catastrophic monetary contractions that the gold standard would have produced.

The choice between fiat currency inflation and gold standard deflation is not a choice between two equivalent monetary systems.  It is a choice between a system with manageable flaws and a system with unmanageable ones.  The fiat system’s flaws — inflation, currency debasement, government overspending — are real, documented, and addressable through policy.  The gold standard’s flaws — deflation, procyclical money supply contraction, inability to respond to liquidity crises — are equally real, equally documented, and not addressable through policy because the gold standard eliminates the policy tools required to address them.

The Great Depression settled this debate empirically.  The academic literature settled it theoretically.  The question of which is more manageable has a clear answer: the system whose problems can be managed is more manageable than the system whose problems cannot.  Inflation at 9 per cent, as the United States experienced in 2022, is painful.  It was brought down to target within eighteen months.  The Great Depression’s deflation took a decade and a world war to resolve.  The comparison is not between equals.  It never was.

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

Quora Answer: How Can Beijing Leverage the Yuan’s Low Interest Rate to Increase the Currency’s Worldwide Use?

The following is my answer to a Quora question: “How can Beijing leverage the yuan’s low interest rate to increase the currency’s worldwide use?”

The premise of the question is wrong.  Beijing does not want the renminbi to become an international reserve currency in the sense that the US dollar is one.  The framing — that Beijing is trying to leverage low interest rates to expand the yuan’s global footprint — assumes an objective that Beijing has never consistently pursued and has, at key moments, actively resisted.  Understanding why requires understanding what currency internationalisation demands — and what it costs.

What Reserve Currency Status Requires

A currency achieves reserve currency status when foreign central banks, sovereign wealth funds, and institutional investors hold it in substantial quantities as a store of value and a medium of exchange for international transactions.  The US dollar currently constitutes 56 per cent of global foreign exchange reserves — down from 71 per cent in 1999, but still dominant.

For the renminbi to achieve comparable status, three conditions must be met.  The capital account must be fully open — foreign investors must be able to move renminbi in and out of China freely, without restriction.  The exchange rate must float freely — the market, not the People’s Bank of China, must set the price.  And China must be willing to run persistent current account deficits to supply the world with the renminbi liquidity that reserve currency status requires.

The United States runs persistent current account deficits —US$800 billion to US$1 trillion annually in recent years — because the rest of the world needs dollars and gets them by selling goods and services to Americans.  This is the Triffin Dilemma, identified by Belgian-American economist Dr Robert Adolphe Triffin in 1960: the issuer of the global reserve currency must run deficits to supply the world with its currency, which eventually undermines the currency’s credibility.  Beijing has no intention of accepting any of these conditions.

Beijing’s Capital Controls are Deliberate, Not Transitional

China’s capital account has been partially open for decades and is no closer to full convertibility today than it was in 2015 — when Beijing’s botched attempt at modest exchange rate liberalisation triggered a capital outflow of US$1 trillion in six months and forced the People’s Bank of China to burn through US$500 billion in foreign exchange reserves to stabilise the renminbi.  The lesson Beijing drew from 2015 was not that it needed to move faster toward capital account liberalisation.  The lesson was that even partial liberalisation, imperfectly managed, created unacceptable vulnerability to capital flight and speculative pressure.  Beijing tightened controls in 2016 and has maintained them since.

China’s State Administration of Foreign Exchange issued Announcement 21 on the 24^th July 2026 — tightening cross-border capital flow reporting requirements for Chinese residents with offshore assets.  This is not the behaviour of a government trying to expand its currency’s international use.  This is the behaviour of a government tightening its grip on capital flows because it does not want the discipline that currency internationalisation imposes.

The International Monetary Fund estimated in its 2026 Article IV consultation that renminbi-denominated assets constitute 2.6 per cent of global foreign exchange reserves.  This figure has barely moved in a decade despite China being the world’s second-largest economy and largest goods exporter.  The stagnation is not a failure of policy execution.  It is the outcome of deliberate policy choice.

What Beijing is Doing

Beijing’s strategy for economic influence is not currency internationalisation.  It is a combination of three parallel approaches that achieve economic hegemony without the vulnerabilities that reserve currency status would impose.

The first is bilateral trade invoicing in renminbi.  China has progressively pushed its bilateral trading partners — particularly commodity exporters and Belt and Road Initiative recipients — to settle trade in renminbi rather than dollars.  The petroyuan — the Shanghai International Energy Exchange’s crude oil futures contract, launched in 2018 and denominated in renminbi — is the most prominent example.  Russia has dramatically increased its renminbi trade settlement since the dollar weaponisation of 2022 froze its central bank reserves.  Saudi Arabia has explored renminbi settlement for a portion of its oil sales to China.  Brazil settled its first trade with China in renminbi in April 2023.

This is not internationalisation.  This is bilateral de-dollarisation — replacing the dollar as the invoicing currency in specific trade relationships without creating a globally liquid renminbi market.  The renminbi received in these transactions is recycled within China’s own financial system or used to purchase Chinese goods and services.  It does not circulate as a global reserve asset.

The second is the digital renminbi.  The e-CNY — China’s central bank digital currency — has been piloted across dozens of Chinese cities and is now being extended to cross-border payment corridors with Hong Kong, Thailand, the UAE, and other partners.  The digital renminbi is designed for surveillance and control, not for reserve currency status.  Every transaction is traceable by the People’s Bank of China.  Every user is identifiable.  This is the opposite of what a reserve currency requires — which is the ability of foreign holders to transact freely without the issuing government’s oversight.  The e-CNY’s cross-border application targets the SWIFT correspondent banking system — specifically, the ability of the United States to exclude countries from dollar clearing by pressuring SWIFT.  Iran, Russia, and Venezuela have all experienced this.  Beijing wants a payment infrastructure that cannot be switched off by Washington.  This is a sanctions evasion tool, not a reserve currency project.

The third is infrastructure and debt diplomacy.  The Belt and Road Initiative has deployed US$1 trillion in infrastructure financing across Asia, Africa, the Middle East, and Latin America since 2013.  BRI lending is denominated partly in renminbi, partly in dollars, and partly in local currencies.  It creates economic dependencies on Chinese supply chains, Chinese contractors, and Chinese financial institutions that serve Beijing’s strategic objectives without requiring renminbi internationalisation.  The debt traps that BRI lending has created — Zambia’s sovereign default in 2020, Sri Lanka’s Hambantota port concession in 2017, Pakistan’s ongoing IMF negotiations partly necessitated by Chinese debt service obligations — extend Beijing’s economic influence through obligation rather than currency.

Beijing’s Treasury Bond Exposure

The renminbi internationalisation question intersects with China’s holdings of US Treasury bonds in a specific and often misunderstood way.  China holds US$770 billion in US Treasuries as of mid-2026 — down from a peak of US$1.3 trillion in 2013.  This decline is not primarily driven by geopolitical calculation, though geopolitical considerations have accelerated it.  It reflects China’s reduced current account surplus — the mechanism by which Treasury purchases accumulated — as domestic consumption grows as a share of GDP and the export surplus narrows.

The exposure creates a specific constraint on Beijing’s policy options.  If China were to sell Treasuries aggressively — as a geopolitical weapon or in pursuit of renminbi internationalisation — the sale would drive Treasury yields higher, raise US borrowing costs, and potentially trigger a financial market reaction that damaged Chinese export competitiveness and the value of China’s remaining dollar-denominated assets simultaneously.

This is the dollar trap.  China holds enough Treasuries to cause disruption if it sells.  It holds enough Treasuries to suffer significant losses if it sells into a declining market.  The weapon is real, and the cost of using it is real in approximately equal measure.  Beijing’s response has been gradual, patient diversification — into gold, into SDR-denominated IMF assets, into bilateral currency swap arrangements with central banks across the developing world — rather than aggressive Treasury divestment.  China has purchased over 1,000 tonnes of gold annually for three consecutive years.  Gold overtook US Treasuries in total People’s Bank of China reserve holdings in early 2026.  This is not renminbi internationalisation.  This is dollar exposure management — reducing the vulnerability to US financial sanctions without triggering the disruption that a sudden Treasury sell-off would produce.

The Summary

Beijing’s strategy is not to replace the dollar with the renminbi.  It is to build a world in which the dollar’s dominance is sufficiently reduced that the United States can no longer use financial exclusion as a geopolitical weapon with impunity.  The tools for this are bilateral trade invoicing, the digital renminbi payment infrastructure, BRI economic dependencies, gold accumulation, and gradual Treasury diversification.  None of these requires renminbi internationalisation.  All of them advance Beijing’s interests without the cost of surrendering monetary policy control to market forces.

A fully internationalised renminbi would mean Beijing could not set interest rates without triggering capital flows that moved the exchange rate.  It would mean speculative attacks on the currency during periods of domestic stress.  It would mean the kind of transparency in the financial system that the Communist Party of China has consistently refused to accept.  The question of how Beijing can leverage the yuan’s low interest rate to increase global use assumes Beijing wants what the question describes.  It does not.  What Beijing wants is influence without vulnerability.  The renminbi as a bilateral trade currency advances this.  The renminbi as a global reserve currency threatens it.  The distinction is the entire strategy.

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