Somewhere out there, there is someone screaming “I knew this was going to happen!”

Maybe they did.

Maybe it was smarts and foresight.

Maybe it was random luck rewarding a fanciful prediction (it wouldn’t be the first time).

Maybe they’re remembering their own thoughts “funny” because it feels good to feel right.

For the rest of us, 2026 has not turned out to be the year we expected.

In capital markets, nowhere is that more apparent than in the world of bonds.

I’m sure you’ve read a headline or two (or ten…) about mortgage rates shooting up by now.

The Mortgage Bankers Association tells us that we left 2025 with the 30-year mortgage rate at just around 6.30%. On October 2 (of 2026, that is), that number was 7.49%.

To state the obvious, 7.49% is a lot higher than 6.30%, especially when you’re the one paying it. Ask anyone involved in residential real estate. I suspect they have opinions.

But here is the thing…

Mortgage rates are like the price of gasoline.

They are the “tip of the spear” for most people.

The thing they face on their way to work, every day.

But the tip of the spear is not where any of this begins.

In this case, the rise in interest rates in 2026 starts in the same zip code where the rise in gas prices started: with the war with Iran.

And mortgage rates are largely keyed off the 10-year Treasury yield, which has risen about 1.3 points since the war began.

Now, every story deserves full context, so let’s start there.

Going back to the early 1960s, when the Fed’s data begins, the U.S. has seen three regimes when it comes to interest rates (we are using the 10-year U.S. Treasury yield as benchmark here).

Rates rose until the early 1980s. That took them from 4% to 16%, using round figures for the sake of exposition.

Then interest rates slowly declined from there through the summer of 2020.

This is “bad bond math” but going from 16% to 0.5% is a 97% decline in the cost of borrowing for the U.S. government.

And then, in the middle of “the summer of COVID,” rates started climbing…

It wasn’t great. The government seemed to enjoy borrowing at bargain-basement interest rates.

But inflation was around the corner. And all that fiscal largesse was starting to feel a little “bingy.” That shouldn’t have been a complete surprise when your drug of choice goes on a 97% off sale. As Charlie Munger famously said, “show me the incentive and I’ll show you the outcome.”

Rates rose rapidly in 2022, as inflation raged on.

Then they started settling, even falling somewhat.

Maybe the inflation emergency was over.

Maybe rates would land around 3% or 4%.

Nothing like 0.5% but also, nothing like 16%.

Something we could “live with.” That was the story of 2024 and 2025.

In fact, it was the story of 2026 until the last trading day of February, Friday the 27th.

The war with Iran started, and with it the prospect of more inflation and more spending.

Rates rose throughout March, until we reached what seemed to be a detente. We were in a holding pattern for a while until rates started rising again in early summer.

First slowly.

Then suddenly.

September saw the type of move you don’t see every day.

The 10-year Treasury yield rose 0.54 percentage points, with most of the increase accounted for by a handful of trading days (September 10th and 22nd did most of the work). Not a thousand-year flood. But still the largest one-month rise since September 2022.

Of course, nothing happens in a vacuum. The war is not the whole story. There is the flood of corporate debt deals for AI data centers competing with the U.S. government for lenders’ dollars. And there is the fact that we just reached a new psychological threshold, $40 trillion in official U.S. national debt. But the war is the backdrop for all of it.

And since we broke the seal of (very) loose bond math, here is a fun one for an abandoned bar napkin.

As I just mentioned, we have roughly $40T in national debt.

And the 10-year U.S. Treasury yield has risen roughly 1.3 percentage points since the start of the war.

Apply that increase to the entire $40T—as though every dollar had to be refinanced at that higher borrowing cost—and the annual interest bill would be roughly half a trillion dollars larger.

Half a trillion dollars. More, on top of what we were already paying.

This is inaccurate because we obviously don’t roll all of our debt at once. U.S. bonds come due on different schedules, so higher borrowing costs work their way into the national interest bill over time. And the 10-year Treasury yield is a benchmark, not the average rate paid on all outstanding federal debt.

But still, something can be wildly imprecise and still be insightful.

This round figure gives you a sense of the scale.

If you’re wondering why bond markets have been anxious, this is a decent place to start.

What happens next, we’ll find out together.

The market-cap-weighted index is often treated as the neutral starting point of investing. But it contains a mechanical rule: as a company’s share price rises, so does its weight. I recently spoke with Ari Polychronopoulos about why that rule matters when a small group of increasingly expensive companies comes to dominate an index, as happened during the technology bubble of 1999–2000.

Ari has spent nearly two decades building and explaining systematic investment strategies. He joined Research Affiliates in 2008, became a Partner, and helped oversee the RAFI index business as assets tracking its strategies approached $200 billion. Ari and I were colleagues at Research Affiliates for years.

Following the sale of that business, he now oversees RAFI Indices at VettaFi.

In our conversation, Ari and I covered the entire historical arc of index investing, from its origins with constructs like the S&P 500 to the rise of alternatively-weighted indices, smart beta, and factor investing.

We trace the development of fundamental indexing as an alternative: weighting companies according to economic measures such as sales, cash flow, dividends, and book value, then rebalancing against those anchors as market prices move. We also work through factor investing in plain language—including why value and momentum can both exist, why an expensive company is not necessarily a growth company, and how systematic strategies occupy the territory between traditional active and passive investing.

You’ll hear us cover:

You can find my conversation with Ari on the latest episode of Treussard Talks, “Beyond Market Capitalization: Rethinking Passive Investing” (with links to Apple Podcasts, Spotify, and YouTube).