Global government borrowing costs have climbed to levels not seen in decades, with the 30-year US Treasury yield maintaining a position above 5%, near its 2007 peak. Similar surges have been recorded in Germany, Japan, and the UK. By traditional financial metrics, such an environment should weigh heavily on equity markets, as higher yields increase borrowing costs, compress valuations, and offer investors a more appealing risk-free alternative to shares.<\/p>\n
However, equity markets have shown remarkable toughness. The S&P 500 is up approximately 13% year-to-date and sits within 1% of its August 13 record high. Europe\u2019s STOXX 600 has gained roughly 9.5%, while Japan\u2019s Nikkei 225 has surged more than 27%. This divergence has left many investors puzzled, prompting a reevaluation of why rising yields have not yet triggered a stock selloff.<\/p>\n
The explanation may lie less in the absolute level of yields and more in the underlying drivers. New York Fed President John Williams recently suggested that the rise in long-term yields is largely a reflection of economic strength and substantial investment in artificial intelligence and data centers. Williams emphasized that the dynamic is the economy influencing financial conditions, rather than tighter conditions weakening the economy. Consequently, while higher financing costs act as a headwind, they are potentially being offset by stronger expected revenues and corporate profits.<\/p>\n
Federal Reserve Chair Kevin Warsh echoed this sentiment during his address at Jackson Hole on August 28. Warsh noted that real consumer spending has grown by over 2% across the previous four quarters, with private domestic final purchases rising at an annual pace of nearly 3% in 2026. He highlighted a stable labor market, pointing to a jobless rate of 4.1% that has remained low and steady for several years.<\/p>\n
Crucially, Warsh stated that he found it difficult to characterize broad financial conditions as restrictive, despite the sharp rise in long-term borrowing costs. This implies that the increased yields have not yet translated into the kind of financial tightening typically associated with threatening the economic cycle.<\/p>\n
Beyond macroeconomic indicators, company earnings provide a significant cushion for equities. Data from FactSet\u2019s Earnings Insight, released on August 28, revealed that 97% of S&P 500 companies had reported second-quarter results. Of those, 86% beat earnings estimates and 77% surpassed revenue projections, figures that exceed both five-year and ten-year averages. Blended earnings growth for the quarter reached 52%, the fastest pace since the second quarter of 2021. Revenue grew by 15.5%, and net profit margins hit 17%, the highest level recorded by FactSet since it began tracking the metric in 2009.<\/p>\n
Even Ed Yardeni, president of Yardeni Research and the economist who coined the term \u201cbond vigilantes\u201d in 1983, is not raising alarms. Yardeni observes that the 10-year Treasury yield remains within his 4% to 5% \u201cold normal\u201d range, which defined the period between the pre-financial crisis era and the pandemic. He also notes that yields remain below nominal US GDP growth, stating, \u201cWe\u2019ll worry about the government\u2019s debt when the Bond Vigilantes do.\u201d<\/p>\n
Yardeni cautioned that rising yields are not a concern in isolation, but warned that trouble would arise if yields continued to climb while economic growth slowed, earnings estimates fell, and inflation expectations accelerated. Such a combination would create the scenario equities fear most: higher discount rates coupled with lower profits.<\/p>\n
For now, the market appears to be absorbing higher rates with the support of unusually strong earnings. The key takeaway for 2026 is that the driver behind rising yields matters more than the yields themselves. If productivity and growth are strengthening, equities can withstand the pressure. The next critical test arrives on September 16, when the Federal Reserve meets for the first time since Warsh\u2019s comments on non-restrictive policy conditions.<\/p>\n","protected":false},"excerpt":{"rendered":"
Despite bond yields hitting multi-decade highs, global stock markets are holding steady. Experts attribute this divergence to strong economic fundamentals and robust corporate earnings.<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[967,1356,379,1355,62,378],"class_list":["post-567","post","type-post","status-publish","format-standard","hentry","category-business","tag-bonds","tag-earnings","tag-economy","tag-equities","tag-europe","tag-federal-reserve"],"_links":{"self":[{"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/posts\/567","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/comments?post=567"}],"version-history":[{"count":0,"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/posts\/567\/revisions"}],"wp:attachment":[{"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/media?parent=567"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/categories?post=567"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/yovao.com\/index.php\/wp-json\/wp\/v2\/tags?post=567"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}