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5 October 2026

G7 bond yields have risen by roughly 1% since January, with long-dated US Treasuries and UK Gilts moving well above 5%. Three explanations compete to explain the sharp repricing.

The first is fiscal deterioration. Public debt and deficits are high across much of the developed world, while increased issuance has coincided with weaker demand. Fiscal concerns, however, don’t fully explain the move: inflation breakevens are stable and yield curves have not steepened significantly. The impact has instead been concentrated in real rates.

The second explanation is stronger economic activity. PMI data and GDP nowcasts have improved, while corporate profits, margins and risk assets remain resilient. The investment associated with AI could also support growth. But productivity data haven’t yet convincingly captured that potential, making this explanation incomplete.

The third – and most persuasive – explanation is structural: crowding out and a regime shift. Fiscal deficits and AI investment are competing for capital in a world where global savings are less mobile and more limited, with the rebalancing pushing equilibrium real rates higher. If the 2010s were the era of a global savings glut and depressed bond yields, the 2020s mark the crossing of a Rubicon. Expect more fragmented capital markets, greater regionalisation, and G7 bond markets less able to rely on the “kindness of strangers” to fund deficits.

For investors, a higher-for-longer regime could offer an opportunity to generate income from G7 bonds, with returns driven less by capital gains. At the same time, bonds’ traditional hedging characteristics could re-emerge. If inflation is anchored at 2–3%, central banks would retain the flexibility to adopt a more dovish stance in periods of macroeconomic weakness or equity-market stress – giving bonds room to rally.

Indian equities have endured a difficult 2026 so far. The first half saw one of the market’s weakest performances in recent memory, as muted foreign participation, sharply higher energy costs, and a weaker rupee weighed on returns. And while foreign flows improved over the summer, investor confidence remains fragile.

Yet, the outlook may be turning. Asia equity analysts suggest India could benefit from a broadening out of market leadership as investors diversify away from a narrow group of AI-related winners. Corporate momentum already shows signs of improvement, with revenues in the large-cap Nifty index recording their strongest growth in 10 quarters in Q2, with earnings rising about 19%, ahead of expectations.

India’s economic growth has also proved relatively resilient: GDP expanded 7.8% year-on-year in the second quarter. Policy support and robust credit growth are also cushioning the economy from external shocks.

For now, India remains under-owned by global investors. But an easing of energy prices and a steadier rupee could be catalysts for a pick-up in sentiment. Risks remain but improving fundamentals suggest this sleeping giant could yet stage a turnaround. 

However, low unemployment could fuel rapid wage growth. Companies seeking to defend margins would keep inflation sticky, triggering tighter policy, while an inability to pass on rising costs would weaken profits. This wouldn’t be good news for markets. Stronger productivity that offsets wage pressures and keeps profits strong is key to providing a longer-term boost to markets.

While European stocks face headwinds from high energy prices, and political and fiscal uncertainty, their cash earnings are improving.

This leaves broad credit functioning less as an independent ballast and more as an echo of equity risk. With this in mind, improved resilience requires moving away from passive benchmarks towards active selection seeking diversification outside the crowded mega-cap complex.

Past performance does not predict future returns. The level of yield is not guaranteed and may rise or fall in the future. For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector, or security. Diversification does not ensure a profit or protect against loss. Any views expressed were held at the time of preparation and are subject to change without notice. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. ���سԹ� accepts no liability for any failure to meet such forecast, projection or target. Source: ���سԹ� Asset Management. Macrobond, Bloomberg, Refinitiv, FactSet. Data as at 7.30am UK time 05 October 2026.

For informational purposes only and should not be construed as a recommendation to invest in the specific country, product, strategy, sector or security. Any views expressed were held at the time of preparation and are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. ���سԹ� accepts no liability for any failure to meet such forecast, projection or target. Index returns assume reinvestment of all distributions and do not reflect fees or expenses. You cannot invest directly in an index. Source: ���سԹ� Asset Management. Data as at 7.30am UK time 05 October 2026.

Global equity markets struggled amid ongoing concerns about elevated government bond yields. While short-end US Treasury yields drifted lower, long-end yields rose to multi-decade highs, driven by higher real yields. European government bonds were mixed but mostly lower, with French OAT and Italian BTP yields surging as fiscal concerns weighed on sentiment. Credit spreads also widened in the US and Europe, particularly in the high-yield segment. US equities were on course to close lower for the week, although the tech-heavy Nasdaq recorded more modest losses. Weaker sentiment also weighed on key indices in Europe and Asia. Sensex fell, alongside broad-based declines in Chinese equities and ASEAN markets. Nikkei 225 bucked the regional trend, gaining on strength in technology stocks. In FX markets, the US dollar strengthened against a basket of major currencies, while gold prices extended their losses.