The recent interest rate turmoil has driven long‑dated government bond yields to notable historical extremes, with U.S. 30-year yields hitting their highest level since 2007, 30-year JGBs since their introduction in 1999, UK gilts since 1997, and German bunds since 2011. Yet, simultaneously, equities have absorbed the rise in yields without too much damage, supported by a strong earnings environment. That resilience should not be taken for granted, however, as the balance of risks is becoming increasingly finely poised.
Global bond markets have sold off sharply in recent weeks, pushing long-end yields to multi-decade highs across major markets. This is not a series of isolated market moves.
Rather, global bond markets are repricing a shared set of risks: stickier inflation, expansionary fiscal policy, and elevated geopolitical uncertainty with a prolonged closure of the Strait of Hormuz. Together, these forces, further reinforced by strong U.S. growth, are eroding confidence in the path towards policy easing and pushing yields higher globally.
Despite this, equities have weathered the rate turmoil without too much damage. Cushioning the blow is a strong global earnings environment. Indeed, global EPS expectations have been revised higher since the onset of the U.S./Iran conflict, reflecting continued strength in U.S. earnings and greater resilience in Europe than initially feared.
Looking ahead, U.S. equities should remain relatively resilient to rising rates, supported by strong earnings, the AI-led capex cycle, and lower direct exposure to higher energy costs. That said, U.S. equity resilience should not be taken for granted: a further rise in energy prices, especially if it weakens growth and triggers a more hawkish Fed response, would put that relative strength to the test. As a result, the balance of risks is becoming increasingly finely poised. In this environment, portfolio resilience, rather than directional conviction, remains paramount.
For more on the forces reshaping global bond markets and what they mean for portfolio construction, read Rising global bond yields: The test for risk assets.
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