08 OCTOBER 2026
We have shown this chart several times before because it highlights one of the most important relationships in financial markets.
Almost every major equity bear market of the past 50 years has been preceded by a significant rise in government bond yields.
The reason being that higher borrowing costs tighten financial conditions, slow economic activity and provide investors with a more attractive alternative to risk assets.
That does not mean every increase in yields is a problem. Markets can generally adapt to gradually higher rates, whereas sharp re-pricings tend to be far more disruptive.
The recent move higher in yields has remained relatively orderly, which is encouraging.
However, with governments, companies and households carrying far more debt than in previous cycles, the global economy is becoming increasingly sensitive to rising funding costs.
Higher yields will eventually expose cracks in economies and markets, but history suggests policymakers are unlikely to sit back and watch.
Meaning a more explicit effort to cap borrowing costs will likely materialise if yields do continue to rise.
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