Bond markets endured another difficult week as stronger than expected growth data pushed interest rate expectations higher and government bond yields hit multi-decade highs. Yet equity markets remained remarkably unfazed.
Read this article to understand:
- Why bond yields continued to surge
- The ongoing swings in oil prices
- How signs of robust economic activity are still supporting equities
The widening disconnect between bonds and equities is becoming one of the defining features of recent months
It was another volatile week in markets as government bonds sold off sharply, pushing borrowing costs to levels not seen since before the global financial crisis, while equities largely carried on regardless. The Nasdaq hit fresh record highs and several major technology companies continued their remarkable advance. The widening disconnect between bonds and equities is becoming one of the defining features of recent months.
The biggest story was the continued surge in government bond yields. The US ten-year Treasury yield rose to 5.2 per cent, its highest level since 2007, while the 30-year Treasury yield climbed to 5.48 per cent, a level last seen in 2004. In Europe, German and French borrowing costs also rose sharply. Investors spent much of the week rethinking the path for US interest rates. By Friday, they were pricing in three to four additional rate rises over the next 12 months. This was one of the most significant shifts in rate expectations seen this year.
At the heart of the sell-off was also a growing recognition that economic growth and business activity remain robust on both sides of the Atlantic, despite higher borrowing costs. In the United States, activity reached its strongest level in five years. Europe also surprised positively, as surveys pointed to stronger growth than forecast.
That picture was reinforced by other data. New applications for unemployment benefits in the United States stayed close to historically low levels, while new home sales climbed to an eight-month high. German business confidence improved again, adding to the sense that consumers and businesses have been far more resilient than expected. The global economy may be slowing from the post-pandemic recovery, but it is proving harder to derail than many anticipated.
Ordinarily, a move higher in bond yields of this scale would put significant pressure on equities. So far, however, investors have shown little sign of panic. The Nasdaq reached new highs, while the broader S&P 500 remained relatively resilient. Artificial intelligence continues to be a powerful source of enthusiasm, with technology and semiconductor companies again leading gains. Meta rose by more than 11 per cent during the week, while several semiconductor stocks extended their rally as investors focused on long-term growth opportunities rather than near-term interest-rate risks.1
Energy markets also provided plenty of drama. Oil prices swung sharply as investors reacted to developments at the United Nations General Assembly and ongoing discussions involving Iran. Hopes of diplomatic progress briefly pushed Brent crude below $100 per barrel but proved short-lived. As geopolitical tensions resurfaced and supply concerns returned, Brent rebounded strongly and by Friday was trading above $105 per barrel.
Economic growth continues to exceed expectations, but bond markets are sending a more cautious signal
Overall, the week’s message was clear that economic growth continues to exceed expectations, corporate earnings remain broadly supportive, and equity investors are staying focused on future opportunities. Bond markets, however, are sending a more cautious signal. With yields now at their highest in nearly two decades, investors are confronting the possibility that interest rates stay elevated for longer than previously expected. For now, equity markets appear comfortable with that outcome. Whether they remain so if bond yields keep climbing may be one of the most important questions for markets in the months ahead.2
Past performance is not a reliable indicator of future results.
References
- The company mentioned is for illustrative purposes only and does not constitute an investment recommendation.
- Source of all the data for this article: Aviva Investors and Bloomberg. Data as of 25 September 2026.
