Severe sell-offs continued in global bond markets this week, pushing borrowing costs and yields in the US, UK and Europe to multi-decade highs. The US 10-year Treasury yield briefly hit 5.34%, its highest level since 2002, before then easing to around 5.25% yesterday. The 30-year yield touched a 24-year high of 5.61% before pulling back.
10-year yields in other rich nations such as Japan, France, Germany and the UK have tracked US Treasury yields higher this week, driving government borrowing costs higher. Sell-offs in government bond markets ripple through economies because sovereign debt sets the benchmark for corporate loans, mortgages and other borrowing.
There are several factors driving government yields higher this year. First, rising bond yields indicate that investors are concerned that inflation is not under control. At the time of writing, Brent crude was still trading above $100, with prices elevated by the continued war in Iran.
Investors increasingly fear that inflation linked to higher energy costs is not transitory, but persistent. The Fed, the European Central Bank (ECB), the Bank of Japan and the South African Reserve Bank (SARB) all increased interest rates last month to address rising prices. Markets are braced for further hikes in the months to come.
Second, governments across the world continue to spend and borrow heavily. In the US, President Donald Trump’s tax cuts have increased the deficit by trillions of dollars over the next decade. Most European nations are struggling to rein in public spending even as economic growth remains tepid. And Japan is making a massive technology investment push.
Third, governments are competing for capital with the multi-trillion-dollar borrowing spree technology companies have embarked on to fund the build-out of AI infrastructure. The combination means that investors are demanding a larger term premium for long-term bonds.
The Organisation for Economic Co-operation and Development estimates the extra return investors are demanding has climbed by more than a percentage point since before the pandemic. Higher yields mean that governments need to spend a larger portion of their budgets servicing debt, crowding out spending on infrastructure and public services.
Annual interest payments in the US could nearly triple to $2.7 trillion by the end of the decade. That is more than America spends on Medicare or Social Security. As the issuer of the world’s reserve currency, America can print dollars to repay its debts, but investors fear inflation might follow.
Yet on the surface, it appears that equities markets have mostly experienced a muted reaction to the global bond rout.
Analysts point out that the major indices are currently propped up by the outperformance of a handful of Big Tech and semiconductor firms. While the S&P 500 Index is trading just 2% short of the record it touched earlier this year, performance is attributable to a handful of mega-capitalisation technology stocks.
Other sectors, including banks, interest-rate-sensitive small-cap stocks and utility companies, are not faring as well. The Russell 2000 Index, which tracks small-cap stocks, may be a canary in the coal mine. This index is coming off its second-worst quarter relative to the S&P 500 since 1999.
But some investors are concerned about whether equities can continue trading near record highs in the face of volatility in global bond markets. According to conventional wisdom, higher bond yields should put equities markets under pressure by enticing capital to government bonds.
In addition, higher interest rates could affect corporate profits in the years to come. Companies refinancing debt will face bigger interest bills. Some analysts believe we could see the impact of these factors within weeks. Goldman Sachs flags US pension funds selling equities to buy bonds as one potential pressure point.
Rising bond yields come at a time of mounting geopolitical risks and US midterm election uncertainty, factors that could signal turbulence to come. Yet that does not mean there is reason to panic. Worries about debt and deficits are not new, although the picture is different now than in the 2010s when low interest rates worked in politicians’ favour.
Two variables will shape what happens next. One is the Iran war. Some analysts see the US 10-year yield returning to 4.5% – 4.75% if a deal is reached to end the conflict, but risks increasing as the war drags on. The other is whether the AI trade delivers the growth that justifies both its appetite for capital and today’s equity valuations.
“The stock market can handle higher yields – for now – as long as the economy and profit growth remain strong. But the biggest risk to stocks is if something goes wrong with AI buildout. If profit outlooks get slashed, it’ll spur wider pain across equities.”
– Eric Diton, President and MD at The Wealth Alliance
“We don’t see the spike in bond yields getting out of hand, and think investors are just dumping rate-sensitive shares and rotating back to tech after a deep selloff earlier this year. But the biggest risk for the S&P 500 is if the AI trade unwinds unexpectedly.”
– Jimmy Lee, CE of the Wealth Consulting Group
Global News
- Global government bonds suffered their sharpest quarterly sell-off since 2024 as persistent inflation, elevated oil prices and heavy borrowing pushed yields sharply higher across major markets. The US 10-year Treasury yield touched 5.34% on Thursday, its highest since 2002, before retreating as buyers returned, after Treasuries recorded their worst quarter since 1994. Rising sovereign borrowing, resilient economic growth and extraordinary capital demand from the AI investment boom are intensifying competition for funding, pushing up the global cost of capital and increasing pressure on governments, companies and households.
- US equities have remained remarkably resilient despite the sharp rise in borrowing costs, with the S&P 500 still close to record highs as strong earnings and enthusiasm for AI support the largest technology companies. Beneath the headline index, however, higher yields are taking an increasing toll: the equal-weighted S&P 500 is heading for a seventh consecutive weekly decline, while small caps, banks, utilities and highly leveraged companies have come under sustained pressure. The widening divergence suggests AI-related strength is masking the broader impact of tighter financial conditions across the US equity market.
- The euro fell below $1.13 on Thursday to its weakest in 17 months as surging US Treasury yields strengthened the dollar despite softer US inflation data. The currency lost about 2.5% in September, its steepest monthly decline since July 2025, as higher energy costs and mounting fiscal and political uncertainty pressured European assets. The weakness despite further ECB tightening highlights the dollar’s support from higher US yields and Europe’s greater exposure to the energy shock.
- France’s fiscal strains began spilling into broader euro-area bond markets on Thursday as investors demanded higher risk premiums for the region’s more vulnerable government debt. The gap between French and German 10-year yields widened to its highest since the euro-zone debt crisis as concerns over France’s deficits, rising debt and political uncertainty intensified. With the ECB giving little indication it will intervene, pressure is increasing on governments to address the underlying fiscal risks.
- In the UK, higher energy costs are reviving inflation concerns and government borrowing costs have risen sharply, with the 30-year gilt yield exceeding 6% on Thursday for the first time since 1998. Stronger growth alongside renewed inflation and strained public finances is increasing pressure on the Bank of England and the government ahead of this month’s budget.
- Trump intensified pressure on the Fed this week, criticising last month’s interest-rate increase and saying Chairman Kevin Warsh should have opposed the unanimous decision. A day earlier, Trump called for former Chairman Jerome Powell to resign from the board following an internal review of the Fed’s headquarters renovation, despite the watchdog finding no misconduct. The interventions keep concerns over political pressure on the central bank in focus as policymakers confront persistent inflation and sharply rising bond yields.
- US mortgage rates climbed to their highest in almost three years on Thursday as surging Treasury yields continued to feed through to household borrowing costs. The average 30-year fixed mortgage rate rose to 7.28%, according to Freddie Mac, intensifying the housing-market “lock-in” effect as homeowners with much cheaper existing loans remain reluctant to sell. Persistently high borrowing costs are constraining affordability and housing activity, providing another direct transmission channel from the global bond sell-off into the US economy.
- The battle for control of the US Senate has widened ahead of the 3 November midterms, with races in several previously Republican-leaning states becoming increasingly competitive. Seven Senate contests are now rated too close to favour either party, while Democrats need a net gain of four seats for a majority. An estimated $11.6 billion has already been spent across the elections, according to AdImpact, exceeding the total spent on the entire 2024 presidential race as both parties commit more resources to an expanding electoral battleground.
- Prospects for a US-Iran settlement remained remote on Thursday, despite continued diplomatic efforts to reopen the Strait of Hormuz and end the conflict. Iran is preparing a broader response if the US resumes large-scale attacks, while Washington is reportedly sending a third aircraft carrier and up to 10,000 additional troops to the region as Trump weighs renewed military action.
- Abu Dhabi is accelerating a “Zero Hormuz” strategy to reduce the UAE’s dependence on the Strait of Hormuz, using its $300 billion investment group L’Imad Holding to fund alternative energy and trade infrastructure. Plans include expanding ports outside the strait and a potential $9 billion privatisation of AD Ports Group as the Iran conflict pushes Gulf states to reduce their exposure to the critical energy chokepoint.
- Saudi Arabia restored about half the flows through its East-West oil pipeline on Monday, reviving a critical export route that bypasses the Strait of Hormuz. Flows to the Red Sea reached at least 3.5 million barrels a day, although a return to the pipeline’s full seven-million-barrel capacity could take about six weeks, providing an increasingly important alternative route as security risks around Hormuz persist.
- China unveiled its biggest stimulus package in two years on Wednesday, introducing mortgage subsidies for eligible homebuyers and expanding central-bank funding for infrastructure, technology and small businesses. The measures are expected to help Beijing secure its 2026 growth target, but economists view them as too modest to reverse the prolonged property downturn or materially revive weak domestic demand. The muted market response underscores continued investor scepticism that incremental stimulus will be enough to generate a stronger economic recovery.
- US semiconductor group Broadcom is expanding its role in the AI infrastructure boom by financing Anthropic’s computing capacity built around its own chips. Under an agreement disclosed on Thursday, Broadcom will lend the AI developer up to $42 billion, with Anthropic expected to become its largest chip-design customer in 2027. As Anthropic prepares for a potential November IPO, the deal illustrates how AI suppliers are increasingly providing capital alongside technology to support demand for their products.
- OpenAI is seeking at least $30 billion in new funding at a valuation of about $1.4 trillion, as investor demand for exposure to the AI leader remains strong despite its enormous capital requirements. The discussions are at an early stage, and terms could change, but the proposed valuation highlights the continuing flow of private capital into leading AI companies even as concerns grow over the cost and financing of the infrastructure build-out.
- Apple is reportedly preparing a major push into the smart-home market on 13 October, centred on a new AI-enabled home hub designed to control connected devices and deliver personalised content to individual household members. The launch is expected to be accompanied by updated HomePod mini and Apple TV devices, as Apple seeks to extend its ecosystem beyond the iPhone and compete more directly with Amazon and Google in the connected home. The initiative represents an important test of Apple’s ability to translate its AI capabilities into a new consumer product category.
- Microsoft shares surged 37.5% in the third quarter, their strongest performance since 1998, adding about $1 trillion in market value as investors gained confidence that its enormous AI investment is translating into commercial returns. Strong cloud growth and AI adoption, alongside positive free cash flow despite heavy capital spending, distinguish Microsoft from some other major AI investors. The rally suggests markets are increasingly rewarding companies that can demonstrate a credible path from AI spending to earnings and cash generation.
- Micron Technology reported record quarterly revenue on Wednesday and forecast stronger-than-expected sales for the current quarter as surging AI demand continues to tighten global memory-chip supply. Revenue more than quadrupled from a year earlier to $54.2 billion, while customer commitments under long-term agreements have risen sharply as technology companies secure future capacity. The results provide further evidence that heavy investment in AI infrastructure is continuing to drive exceptional demand across the semiconductor supply chain.
- BMW said on Wednesday it will reduce management roles and divisions by 20% by mid-2027 as it expands the use of AI to cut costs, streamline decision-making and restore profitability. The restructuring forms part of a broader reduction of about 8,000 white-collar positions in Germany as the carmaker contends with intense competition in China and other margin pressures. The move provides one of the clearest examples yet of AI reshaping corporate structures and white-collar employment beyond the technology sector.
- Online fast-fashion retailer Shein fell to a record low on Tuesday after reporting a 53% drop in first-half operating income in its first results since listing in Hong Kong on 1 September. Higher freight costs, weakening demand and new US and European trade measures are squeezing margins and pressuring its low-cost business model. Shein’s market value has fallen to about $17 billion from $26 billion at listing, raising questions over whether its rapid-growth model can adapt to a more costly global trading environment.
- As at Thursday’s close the S&P 500 was 0.99% down for the week.
Local News
- The rand weakened through R16.70/$ on Friday to its weakest level against the dollar since July as surging US Treasury yields strengthened the dollar and put pressure on emerging-market currencies. The decline came despite improving domestic manufacturing sentiment and resilient vehicle sales, suggesting global rather than local factors are driving the latest weakness. Elevated US yields and higher oil prices are adding to South Africa’s inflation risks and keeping the currency vulnerable to further global market volatility.
- The JSE All-Share fell 6.7% in September, wiping out more than R1.6 trillion from its market value as rising global yields, elevated oil prices and weaker precious-metals prices weighed on South African assets. Mining shares bore the brunt of the sell-off, while the broader market underperformed emerging-market peers. The index has reached technically oversold levels, although a sustained recovery is likely to depend on a softer dollar, lower global yields and renewed support for commodity prices.
- SARB said on Monday that the prolonged Middle East conflict is feeding directly into domestic inflation through sharply higher fuel and fertiliser costs, adding pressure to both producer and consumer prices. Consumer fuel inflation surged to 34.3% in June before moderating. The combination of renewed inflationary pressure and weak underlying economic growth complicates the outlook for monetary policy and leaves South Africa particularly exposed to a prolonged energy shock.
- The ANC has asked the Constitutional Court to overturn its exclusion from contesting proportional-representation ballots in six municipalities in the 4 November local elections after failing to complete the IEC’s online nomination process before the deadline. The Electoral Commission argues that the requirement to make a final submission has applied for a decade and that the party simply ran out of time, while the ANC maintains that candidate information uploaded before the deadline should be accepted. The case could determine whether 181 excluded ANC candidates are reinstated ahead of next month’s vote.
- Johannesburg’s governance and infrastructure crisis emerged as a central issue ahead of the 4 November local elections, as leaders of the ANC, DA, EFF, IFP and ActionSA clashed on Thursday over coalition instability, corruption and service delivery. The city contributes about 15% – 16.5% of South Africa’s GDP but continues to struggle with deteriorating infrastructure, weak service delivery and revenue collection. With no clear consensus among the major parties on future coalition arrangements, the election will be closely watched to see whether it can deliver a more stable government in the country’s largest economic hub.
- Lawmakers expect to pass legislation enabling the transition to South Africa’s new benchmark interest rate by year-end. Zaronia, SARB’s near risk-free overnight rate, is set to replace the Johannesburg Interbank Average Rate (JIBAR), which underpins pricing across loans and financial markets. The reform brings South Africa into line with the global shift towards transaction-based benchmark rates and is intended to create a more transparent and reliable reference for financial contracts.
- Eskom has cut diesel spending by nearly 81% in the financial year to mid-September as improved performance from its coal-fired fleet sharply reduced reliance on expensive emergency generation. The improvement has come despite diesel prices rising more than 58% amid the Middle East conflict, shielding the utility from a potentially significant increase in fuel costs. Eskom said on Monday that its energy availability factor had reached a six-year high, while South Africa has now gone 490 days without load-shedding, reinforcing the utility’s operational and financial turnaround.
- South Africa and Zimbabwe are in talks over a proposed $500 million dam in Zimbabwe that would supply water to the Musina-Makhado Special Economic Zone in Limpopo, officials said on Monday. The project would provide a new cross-border water source for the planned industrial hub, where access to reliable water infrastructure is a critical constraint on development. If approved, preparation would take about 18 months, followed by roughly three years of construction, potentially unlocking further industrial investment in the region.
- Johannesburg’s City Power faces an infrastructure backlog of more than R44 billion, as ageing distribution networks increasingly undermine electricity reliability despite improvements in national generation. A Centre for Development and Enterprise report released on Tuesday found that deteriorating infrastructure accounts for about 60% of outages, while electricity revenues are not consistently retained for investment in the network. The findings highlight a growing shift in South Africa’s power challenge from insufficient Eskom generation to financially strained, deteriorating municipal distribution systems.
- International tourist arrivals rose 7.4% year on year in August to just over one million, according to Statistics South Africa. However, visitors remain concentrated in neighbouring SADC countries, while arrivals from higher-value markets including China and India remain well below pre-pandemic levels. A BDO analysis estimates that South Africa lost about R6.5 billion in potential foreign tourism spending last year, highlighting the gap between recovering visitor numbers and the sector’s full economic potential.
- Capitec reported record first-half earnings on Tuesday, with headline earnings rising 19%, but is slowing lending growth and increasing provisions as it prepares for a tougher economic environment. Its diversification beyond traditional banking is accelerating, with fintech operations contributing 29% of earnings as digital payments, insurance and mobile services expand. Stronger non-lending income and a more cautious approach to credit leave the bank better positioned to absorb pressure from rising inflation and weaker consumer confidence.
- Discovery Vitality launched an expanded weight-management programme on Thursday as use of GLP-1 obesity medicines among Discovery Health Medical Scheme members has almost tripled since 2022. The R295-a-month HealthyWeight service combines medical, nutrition and behavioural support, responding to data showing that most members using GLP-1 drugs discontinue treatment within six months. With cheaper generics expected to broaden access, the initiative positions Discovery more directly in the rapidly expanding weight-management market.
- As at the time of writing, the rand was 2.7% weaker against the dollar, and the ALSI was 2.1% down for the week.
Sources: Dynasty, Business Day, Moneyweb, Reuters, Bloomberg, Daily Maverick, CNN, TechCentral, etc.
