"A Vicious Cycle": What Risks Does Rising Bond Yields Pose to the Stock Market?

Rising yields on U.S. Treasury bonds could trigger a stock market decline, analysts at J.P. Morgan Global Research warn. Yields on 10-year U.S. Treasuries have already entered the dangerous range of 5–5.5%, at which point the risk of such a scenario increases, according to their note published on October 19. Even a strong economy may no longer be able to support the stock market: expensive borrowing will begin to slow corporate growth, and high interest rates will put pressure on stock valuations.

The stock market could come under pressure if Treasury yields exceed a critical level, analysts say. A historical analysis by J.P. Morgan showed that stocks can rise even as bond yields increase. However, once yields pass a certain threshold, high interest rates begin to slow corporate growth, while high inflation and downward revisions to future earnings estimates put pressure on stock prices.

For now, the stock market is weathering the rise in bond yields, according to Mislav Matejka, head of equity strategy for Europe and emerging markets at J.P. Morgan. But beyond that, the outlook is becoming increasingly uncertain, he writes. When the yield on 10-year U.S. Treasury bonds enters the 5–5.5% range, the risk that further increases in that yield will be accompanied by a decline in stock prices rises sharply, the strategist believes. How serious this threat turns out to be depends on the reasons behind the rise in yields and on the extent to which high borrowing costs are already holding back economic growth.

Rising government bond yields could trigger a “vicious cycle,” warn analysts at J.P. Morgan Global Research. If governments have to pay more to issue new debt and refinance existing debt, budget deficits could widen. This, in turn, could prompt investors to demand even higher yields on government bonds, leading to a further increase in debt service costs. At the same time, borrowing costs for businesses and consumers will rise.

By 2035, high yields on government bonds could double the U.S. budget’s interest payments on the national debt, according to Joyce Chang, head of J.P. Morgan Global Research. Even if interest rates exceed forecasts by just one percentage point, the national debt could increase by an additional $3.5 trillion.

Government bond yields around the world have been rising since the beginning of 2026 and have reached multi-year highs. “We’re running out of superlatives amid the relentless rise in global bond yields,” says Jay Barry, head of global interest rate strategy at J.P. Morgan.

Earlier in October, the yield on 10-year U.S. Treasury bonds—a key benchmark for global bond markets— exceeded 5.3%, hitting its highest level since 2002. By the end of February, however, the yield on 10-year Treasuries had fallen below 4%. In the United Kingdom, the yield on 30-year government bonds exceeded 6% for the first time since 1998. In France, the yield on 10-year bonds reached its highest level since mid-2002, while in Japan, it exceeded 3% for the first time since 1996.

According to analysts at J.P. Morgan Global Research, the main reason for the rise in U.S. Treasury yields is expectations of a more hawkish Fed policy. The economy continues to grow, the labor market remains strong, and high inflation and expensive energy prices are preventing rate cuts. In Europe, investors also expect further rate hikes by the ECB, and rising energy prices due to the conflict in the Middle East are putting additional pressure on the bond market.

This article was AI-translated and verified by a human editor