ASX Trader: Warning signs flash for 40 years of interest rate rise hell

The alarms bells are ringing. We’re entering a potential 40-year era of interest rate rises, where rates could reach up to 8 per cent. That’s why I’ve locked in my rates now, writes ASX Trader.

Over the last 12 months, Australians have been lulled into believing one simple idea: “rate cuts are coming.”

But every indicator I monitor and every move I’ve made with my own money has pointed in the opposite direction.

That’s why I wrote ‘Closing down sale no one wants: Uncomfortable truth about rate cuts’ in my column a couple of months ago.

Before the most recent RBA announcement, I said openly that I don’t believe interest rate cuts are coming at all.

In fact, Australia may be on track for the biggest rate hike since 2022 — likely arriving in 2026.

Two weeks ago, I locked in my own interest rates.

I’m sharing that publicly because I’ve been early on this before: I was one of the few calling the 2022 rate-hike cycle roughly six months before it hit.

Today, I’m seeing very similar signs again and none of them are pointing to cuts.

Most Australians Have Never Experienced This Kind of Cycle

Unless you’re over 75, your entire financial life has happened during one giant tailwind: falling interest rates from the 1980s until 2020.

Lower rates became “normal.”

Cheap money became “normal.”

Soaring property and asset prices became “normal.”

But the world has changed.

We are no longer in a falling-rate era — we are now in a rising cost of money era.

And that shift affects:

• home loans

• property values

• business borrowing

• job security

• investment returns

Yet most Australians are still positioned for the last cycle, not the next one.

The direction for interest rates is now headed up after a 40-year downward trend.

The Bond Market Just Sent a Major Warning

Here’s the indicator almost every beginner ignores, and almost every professional watches:

The Australian 10-Year Government Bond Yield (AU10Y) just broke out bullish.

This is not just a line on a chart.

It’s the market’s way of saying:

“Money is getting more expensive and it isn’t stopping yet.”

RBA Governor Michele Bullock has already made it clear: no cuts are coming, and a hike is possible next year.

When the central bank is signalling tight policy and the bond market is pushing yields higher, the risk of another major rate increase jumps dramatically.

The bond markets are firing a warning shot.

Why Some Banks Are Lifting Rates Even Before the RBA Moves

Many Australians don’t realise banks can raise rates anytime — even if the RBA doesn’t.

Banks fund home loans using:

1. customer deposits

2. wholesale markets

Wholesale funding costs rise as soon as long-term bond yields rise.

So when AU10Y spikes, banks’ funding costs go up instantly — meaning they may raise mortgage rates early.

That’s exactly what we just saw with the latest out-of-cycle rate increases.

If AU10Y pushes toward 6.5 per cent it would represent a major long-term shift — not a small bump and it would hit borrowers hard.

Why Interest Rates Could Go to 6–8 per cent in This Cycle

Here’s the part most people misunderstand:

The RBA doesn’t control long-term interest rates.

They control the short-term cash rate.

But the long end — the part that affects mortgages, banks, and markets — is controlled by the global bond market.

Long-term rates rise when:

• inflation refuses to fully disappear

• wages keep pushing higher

• governments run massive deficits

• more bonds flood the market (lower price → higher yield)

• foreign buyers demand a higher return to hold our debt

• the currency weakens due to inflation or fiscal concerns

This is why yields can rise even when central banks pause.

It’s why mortgage rates stayed high in the US even after the Federal Reserve started cutting in 2019.

The bond market leads.

Central banks react.

And right now, the bond market is warning us loudly.

Interest rates are only going up from here writes ASX Trader.

Bonds Run the World

Retail investors rarely trade bonds.

But institutions do and they’re the ones who effectively set the global cost of money.

That’s why there’s a saying on Wall Street:

“If you want to know where the economy is heading, watch the bond traders — they see it first.”

Rising yields tell us:

• inflation expectations are rising

• money is getting more expensive

• deficits are pressuring borrowing costs

• long-term rates could stay elevated for years

And that’s exactly what we’re seeing now.

The MOVE Index: The Volatility Warning Light

One of my favourite indicators — and one the pros watch closely — is the MOVE Index.

It measures volatility in US Treasury yields.

MOVE down = calm → smoother trends

MOVE up = stress → choppier markets, risk-off conditions

The MOVE Index has been:

• extremely oversold

• starting a major bullish reversal

• threatening a violent spike higher

If it surges, it means the market expects big swings in interest rates — the kind of environment that often leads to:

• tighter lending conditions

• falling asset prices

• increased recession risk

“When the cost of money becomes unpredictable, everything else becomes fragile.”

The US bond market.

Are We Entering a New Multi-Decade Cycle of Rising Rates?

US 10-year yields tend to move in long eras:

• declining into ~1940

• rising into ~1980

• declining into ~2020

If 2020 was the end of the 40-year falling-rate era, we may now be entering a long-term rising-rate environment.

What supports that view?

• Inflation keeps coming back, even after dips

• Wage growth is structurally high

• Governments are issuing record levels of debt

• Long-term bond yields remain high even when central banks pause

• Housing affordability is collapsing

• Markets are rewarding companies with real profits, not dreams funded by cheap money

This is what a regime shift looks like.

And most Australians have never lived through one.

What we’re entering is an interest rate cycle many people haven’t lived through in their financial lives.

The Real Risk Isn’t High Rates — It’s the Recession They Trigger

Nobody panicked when mortgage rates were below 4 per cent.

The panic begins when rates push above prior cycle highs and stay there.

Household stress is already visible:

• rising arrears

• shrinking savings buffers

• growing financial strain

Australia hasn’t experienced a genuine housing recession since 1991.

When one finally arrives, it won’t be tidy:

• forced selling

• job losses

• credit tightening

• collapsing confidence

This is the risk most people underestimate.

Not “high rates.”

But high rates during a recession.

The Bottom Line: A 2026 Rate Hike Is No Longer a Fringe View

If AU10Y continues higher and especially if US10Y confirms a breakout — the probability of a 2026 rate hike rises dramatically.

Not a cut.

Not a pause.

But a major hike, potentially the biggest since 2022.

For those prepared, this shift may be one of the greatest wealth opportunities of the decade.

For those positioned for the last cycle, it may be devastating.

As Sun Tzu said:

“In the midst of chaos, there is also opportunity.”

But only for those who recognise the regime change early.

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Originally published as ASX Trader: Warning signs flash for 40 years of interest rate rise hell