Interest rates are back in the headlines, and on the surface the news looks grim. But the picture changes depending on who is doing the borrowing.

The all-item CPI rose 3.4% in the 12 months through August and is likely to rise further as oil prices have returned to levels last seen when the war in Iran was still daily news. Most analysts favor the core CPI, which ignores food and energy price fluctuations and was 2.4% over the past twelve months. We’ll repeat what we said last month: energy tends to work its way into core prices with a lag. Meanwhile, companies have received over $100 billion of tariff refunds, with an estimated $70 billion more to be returned. The tariffs were inflationary, and it stands to reason that the refunds are disinflationary. This effect might be viewed as a temporary headwind to prices, while energy represents an upward pressure which may or may not be equally temporary depending on what happens next with energy markets.

The Federal Reserve voted to increase overnight lending rates by 0.25% to a new lower bound of 3.75%. The Fed started cutting rates two years ago in September 2024. Coming into the year, expectations had been for continued rate cuts, but stubborn inflation underpinned by constructive economic data and a rising stock market have forced the Fed’s hand. Long-term rates have not vacillated like the way the Fed has. They have continued to go in one direction: up. The yield on the 30-year Treasury shot up from 1% to 5% from early 2020 to late 2023. As the yield plateaued around that level for two years, many analysts projected a future decline. Instead, long yields are on the rise again. The 30-year crossed 5.4% in September. The 10-year crossed 5% for the first time since 2007. Inflation is sticky. Rates are rising. The bond vigilantes are snarling.

Except that’s not the whole story. When pundits refer to rising interest rates, they are usually talking about the rates paid by national governments on their sovereign debts. Those rates vary according to forecasts for growth, the value of the national currency, and investors’ assumptions about default risk, which is typically small but non-zero. Generally speaking, sovereign bonds benefit from their sponsors’ tremendous power to tax and to print money. Borrowers without their own prisons, armies, or monetary authorities pay a premium above government rates, called a spread, and those spreads have come down, cushioning the practical economic effects of those headline rate increases. Mortgage spreads in the U.S. peaked at 3% in early 2023 and are presently below 2%. They could well fall further, as they have spent much of the past thirty years closer to 1.5%. Credit spreads on high-yield, or “junk,” bonds have also narrowed and now sit near the low end of their historical range at about 2.75%, compared with a long-term average of about 5%. These probably don’t have a lot to give. Investment-grade debt has behaved the same way, although on a compressed scale, because yields are lower than junk bonds.

If a rate rises in the forest but nobody pays more interest, does it make a sound? The mortgage market has been cushioned against 1% of the increase in government rates, while corporate borrowers have been cushioned against about 2%. Headlines about housing market pressure could be prescient but currently feel like clickbait. 30-year fixed mortgages at 6.8% are only at about their average of the past 4 years. The same is true for corporate yields, with the exception of the riskiest CCC-rated bonds and below. From an economic perspective, rising rates are a sovereign government problem. Homebuyers and corporations continue to experience a post-pandemic status quo. Borrowers may be demanding higher yields to compensate for the (mainly) inflationary risks of government bonds, but the practical effect on the real economy remains minor so far. One interpretation is that the stimulative effects of deficits are about as credit positive for borrowers as they are inflationary, and the two forces offset each other.

For investors, that means rate headlines alone are not a reason to abandon a sound plan. As always, we preach earnings growth and diversification.

Coming soon: In our next post, we look at the call to slow down AI, the midterm elections, and why Social Security’s funding gap may matter more than the headlines suggest.

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The commentary is excerpted from the issue of the Investor Advisory Service newsletter published at the end of September 2026. To receive commentary like this in a timely matter and receive actionable stock ideas each and every month, subscribe today. The Investor Advisory Service stock newsletter was named to the Hulbert Investment Newsletter Honor Roll for the 16th consecutive year for outperforming every up and down market cycle since 2007.

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