Even Government Bonds Are Losing Money — What Surging Yields Mean for Your Portfolio

August 2026

By Will Glyn

There is a corner of almost every portfolio that most people rarely think about. It doesn’t make headlines, it isn’t meant to be exciting, and for decades it quietly did its job — government bonds, the ballast that is supposed to hold steady while the shares do the interesting stuff. That corner has just had one of its roughest runs in living memory, and this month it reached a mark that ought to make us look up.

In mid-August the yield on the US 30-year Treasury bond climbed above 5.3%, its highest since 2007 — before the last financial crisis — according to reporting from Bloomberg and CNBC. It is not only an American story. In Japan, the 40-year government bond yield climbed to record highs above 4% earlier this year and is still hovering around that level; and long-dated UK gilts have spent much of the year near levels last seen in 1998. When the borrowing costs of the world’s most creditworthy governments are pushing towards multi-decade highs, something bigger is going on than any one country’s politics.

On Friday, the new chair of the US Federal Reserve, Kevin Warsh, gives his first big speech as chair at the Jackson Hole symposium, and markets are watching it closely. So this is a good moment to explain, in plain terms, what has happened to the “safe” part of your portfolio, why it happened, and — the bit that actually matters — what I’d do about it.

The world’s safest assets, losing money

Here is the thing that surprises people most: government bonds can lose you money, and lately they have lost a fair amount of it.

The mechanics are worth thirty seconds, because they explain everything else. A bond’s price and its yield move in opposite directions, like two ends of a seesaw. When new bonds are issued paying higher interest, the older bonds paying less become worth less — nobody wants a bond yielding 1% when a fresh one pays 5%, so the price of the old one falls until the maths lines up. And the longer a bond has left to run, the more violently its price swings when yields move. That sensitivity has a name — duration — and over the last few years it has been brutal.

Picture a 30-year government bond issued back in 2020, when yields were around 1%. As yields marched up towards 5%, the investor holding it didn’t just earn a meagre 1% — they watched a large part of its market value disappear. Long-dated government bond funds, the sort tucked inside many “cautious” and “balanced” portfolios, fell heavily from their 2020 peaks, and plenty have still not recovered. The asset that was supposed to be the safe one turned out to carry a risk most people didn’t know they were taking.

But most of us own bond funds, not bonds

Here’s where it gets personal, because hardly anyone buys an individual government bond directly. Most of us hold bonds through a fund — something like the Vanguard Global Bond Index Fund, or whatever sits in the “bonds” slice of a portfolio or pension — and a fund behaves differently from a single bond in one crucial way.

A single bond has a maturity date: hold it to the end and, barring default, you get your money back, whatever the price did along the way. A bond fund has no maturity date. It holds thousands of bonds and constantly rolls the maturing ones into new ones, keeping a roughly constant duration and simply riding the market up and down. There is no date on which it “comes good” and returns your capital — which is exactly why 2022 hurt fund holders so much: no maturity to wait for, just a lower price.

So the duration decision isn’t really yours to make bond by bond — it’s baked into whichever fund you own. The useful part is that it’s published: a bond fund’s factsheet shows its “average” or “effective” duration, and that single figure tells you roughly how much the fund moves for each 1% change in yields — as a rule of thumb, a duration of seven years means about a 7% fall if yields rise by 1%, and a 7% gain if they fall. The real choice, then, isn’t the maturity of a single bond; it’s picking a fund whose duration matches how soon you’ll need the money — a decision few people have ever consciously made.

Why yields keep climbing

So why won’t yields settle down? There is no single villain, but a few forces are pulling in the same direction.

The biggest is plain supply and demand. Governments across the developed world are borrowing heavily — to cover deficits, service old debt and fund everything from defence to ageing populations — so new bonds are flooding onto the market just as some of the traditional big buyers step back. More sellers than willing buyers means lower prices and higher yields. Add inflation that has stayed above target for years, and lenders reasonably demand more to tie their money up for decades.

You could see the tension in real time this month. The US Treasury Secretary, Scott Bessent, announced he would at least double the government’s buybacks of long-dated bonds — in effect stepping in as a buyer to steady the market. According to Reuters, it worked for about a day before yields climbed back. Kevin Warsh, the new Fed chair, has signalled that he is relatively relaxed about higher yields, viewing them as the market doing its job rather than a problem to be squashed. That is a meaningful shift in tone from the Fed — and a large part of why Friday’s Jackson Hole speech matters so much.

The other side of the coin: 5% is back

It would be easy to read this as gloom, but there is a genuine silver lining, and it is a big one.

For the best part of fifteen years after the financial crisis, savers were starved of income: cash paid next to nothing, “safe” bonds almost nothing, and anyone wanting a decent return was pushed into more risk than they might have liked. That era is over. A high-quality government bond — a US Treasury or UK gilt, say — will now pay you somewhere around 4–5% a year to lend for a decade or more, a real, contractual return rather than a hopeful one.

In other words, the same rise in yields that punished old bondholders is a gift to anyone with new money to invest. The catch is that not all of that 5% is free — part of it pays you for inflation and for the risk that yields climb further — so it rewards being deliberate about which bonds, in which currency, and for how long. Which brings me to what matters most if your financial life is spread across borders.

What it means if you live and invest across borders

For internationally mobile investors, this moment deserves more than a shrug, for a few reasons that are easy to miss:

• The “safe” bucket may not be doing what you think — a lot of people hold their defensive money in long-dated bond funds without realising how much those funds can move; the last few years were a hard lesson in that.
• Currency changes the whole calculation — a 5% yield on a US Treasury, a UK gilt or a German Bund are three different propositions once you allow for the currency you actually spend; matching your bonds to your future liabilities matters more than chasing the highest headline number.
• Duration is a dial you can set — through the fund you choose: a short-dated bond fund barely flinches when yields move, a long-dated one lurches. Match that to how soon you’ll need the money, rather than leaving it to whatever you happened to buy.
• Where you hold it still counts — the wrapper and tax treatment that made sense in the country you left are often the wrong ones where you live now, and bonds throw off income that different jurisdictions treat very differently.

This doesn’t argue for a dramatic gesture. Selling everything in a panic because bonds had a bad few years is exactly the sort of move that turns a paper wobble into a permanent loss — I’ve written before about how expensive that instinct can be. The smarter response is quieter: understand what you actually hold, check that the “safe” part is genuinely playing the role you gave it, and take advantage of the fact that, after years of thin returns, patience in high-quality bonds is being paid for again.

How We Can Help

At Proctor Wealth Associates we are independent advisers who work with expats all over the world, and the “boring” half of a portfolio — the bonds, the cash, the defensive assets — is exactly where a lot of quiet value is won or lost. We can help you:

• See what your “safe” money is really doing — a clear picture of the bonds and funds you hold, how sensitive they are to rising yields, and whether that matches the job you need them to do.
• Put new money to work sensibly — building a bond and cash allocation that takes advantage of today’s higher yields without reaching for risk you don’t need.
• Match it to your currencies and your timeline — so your defensive assets line up with where you live, what you spend, and when you’ll need the money.
• Get the structure right for where you live — matching the wrapper and tax treatment to your country of residence, not the one you left.
• Keep it under review — so the next lurch in the bond market is something you understand, not something that catches you out.

If you’d like a second pair of eyes on the “safe” part of your portfolio — the part it’s easy to stop looking at — you can book a call with me and we’ll go through it together.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.