Surging Bond Yields Threaten Global Stock Rally as Inflation and War Risks Rise
Surging Bond Yields Raise Pressure on Stocks and Global Markets
TORONTO — Rising global bond yields are beginning to challenge the foundation of the global stock market rally, as investors rapidly reprice inflation risks, geopolitical instability, and growing sovereign debt burdens.
That is the warning from Nigel Green, CEO of deVere Group, following a sharp selloff in global bond markets tied to escalating Middle East tensions and expectations that interest rates may remain higher for longer.
The benchmark 10-year US Treasury yield climbed to 4.631% on Monday, its highest level since February 2025. Meanwhile, the two-year Treasury yield rose to 4.102%, a 14-month high, while the 30-year Treasury yield reached 5.159%, its highest level in a year.
Japan’s bond market also came under pressure. The 30-year Japanese government bond yield moved above 4.2% for the first time on record, while the country’s 10-year yield climbed to levels last seen in 1996 after reports suggested Tokyo is preparing additional debt issuance tied to emergency wartime spending measures.
Higher Yields Reshape Equity Market Outlook
Green said investors are increasingly recognizing that fixed income markets are fundamentally reshaping the outlook for equities.
“Bond markets are beginning to challenge the entire foundation of the equity rally,” Green said.
“For years, equities benefited from ultra-cheap money, suppressed sovereign yields and abundant liquidity. Investors had little alternative but to move further out on the risk curve.”
He added that government bonds are once again offering attractive returns at the same time inflation pressures continue building globally.
The latest rise in yields coincided with another jump in oil prices after renewed attacks linked to the Middle East conflict. Brent crude traded around $111 per barrel after reports emerged of a drone strike targeting a nuclear facility in the United Arab Emirates, raising concerns that diplomatic efforts to end the Iran war are stalling.
Inflation Risks Continue to Build
According to Green, geopolitical instability is feeding directly into inflation expectations and the outlook for global interest rates.
“Markets increasingly recognize that inflation risks remain structurally elevated,” he said.
He pointed to energy shocks, tariffs, defence spending, labour shortages, and massive investments in AI and technology infrastructure as contributors to persistent inflationary pressure across major economies.
Global investors are now reassessing expectations for central bank policy over the coming quarters.
“Bond markets are warning that inflation could prove much stickier than many investors anticipated,” Green explained. “Investors are demanding significantly higher compensation for inflation risk, fiscal deterioration and geopolitical uncertainty.”
Sovereign Debt Pressures Add to Market Stress
The scale of government borrowing is also adding pressure to bond markets.
Japan’s plans for additional fiscal spending have intensified concerns over already strained public finances, while the United States, United Kingdom, and several European economies continue issuing significant amounts of debt into markets demanding higher yields.
“Governments across the world are borrowing aggressively at the same time investors are becoming less willing to finance deficits cheaply,” Green said.
Higher sovereign yields also affect broader financial conditions, including mortgage rates, corporate borrowing costs, and equity valuations.
Tech Rally Faces Growing Scrutiny
Green noted that much of the recent stock market rally has been concentrated in a relatively small group of AI and technology companies, leaving broader markets vulnerable if yields continue climbing.
“AI optimism and strong earnings have supported equities, but markets are becoming far more sensitive to the cost of capital,” he said.
“Higher bond yields mechanically compress equity valuations by raising discount rates and offering investors a more competitive alternative to stocks.”
Investors Face a New Market Environment
Green described the current bond market repricing as one of the defining investment stories of 2026.
“Global markets are undergoing a significant repricing driven by inflation fears, geopolitical conflict, rising debt issuance and structurally higher yields,” he said.
“Fixed income is becoming genuinely competitive with equities again, and investors are adjusting accordingly.”
This article is based on information provided by deVere Group and Prior Consultancy and was prepared for publication by GTA Today.
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