The Ghost of the GFC: Yields Keep Rising

Bond yields are rising in the US, and that’s sending tremors through the global economy, including here in Australia.

The 10-year closed at 5.11% last week, among the highest since 2007, and it’s showing no sign of slowing.

We all know what happened back then: the rising cost of borrowing exposed the US subprime crisis and led to a housing and economic meltdown.

The GFC Ghost Returns

No doubt, whenever the economy hits a 2007/2008 milestone, investors get nervous.

Not surprisingly, there’s been a tidal wave of commentary within financial circles about today’s rising yields… Some good. But mostly bad.

From what I can tell, no commentator has quite been able to put their finger on WHY yields are actually rising in today’s market.

Of course, there are opinions, but no conclusive answer that I’ve come across.

Commentary is awash in contradictory views. And that certainly makes life harder for investors.

In fact, explanations for rising yields have so far swung in both directions, from doomsday to the idea that they actually signal positive signs in the economy.

Factor in, too, that with the US midterms coming up, many of the explanations are tainted by political bias.

Those who favour Trump tend to rationalise the positive aspects of rising yields, while Democrats take a more doomsday outlook.

So, let’s lay out some of the arguments to try and pinpoint what might be going on… First up, the doomsdayers.

Their argument goes something like this:

Yields UP Equals BAD

According to those sitting in the pessimistic camp, global yields are rising thanks to record government spending, stretching already out-of-control debt-to-GDP ratios.

No doubt, the US war in Iran is adding fuel to that argument.

According to this site, which tracks the daily cost of the Iran War, the total bill is now up to $113.3 Billion, with the war costing about $1 billion a day.

And there are other factors too; some suggest that Trump’s wild tariff policy decisions have driven buyers away from the US Treasury market.

Ultimately, hurting the government’s perceived creditworthiness.

Treasuries, it seems, are losing their status as a bedrock asset class. As such, buyers are demanding more for that higher apparent risk.

And to make matters worse, as the US 10-year yield rises, other global bond markets tend to follow; yields are rising across most developed economies.

And that creates more competition among bond issuers, the nations, states, provinces and corporations; they’re all vying for the attention of bond buyers.

Bottom line: global bond buyers are demanding more for their money, and some put that down to greater perceived risk in the bond market.

More risk, higher yields. It’s a solid argument.

And that’s coming at a time when governments are already heavily indebted and competing to keep the spending (and debt) rolling over.

But there’s another argument taking shape here, one that’s painting a more positive spin on rising yields in the global bond market.

Yields UP Equals GOOOD

That argument goes something like this…

The US economy is still humming. The Philadelphia Fed Survey puts this at around 2.2–2.5% on an annual average basis in 2026.

Add to that, business activity remains strong, and unemployment remains low by historical standards.

All signs that we’re still a long way from any economic calamity.

Then there’s the mega tech hyperscalers who are diving into the global bond market to fund lavish, multi-billion-dollar data centre build-outs.

Amazon, Meta, Oracle, Alphabet (Google), and Microsoft are on a global debt-raising spree; they collectively raised over $100 billion last year.

By 2027, that’s set to build north of $400 billion.

In other words, the competitive bond market isn’t just about indebted governments looking to borrow their way out of the next election; it has an economic foundation as hyperscalers compete in the debt market.

So, who’s right?

Like all things in life, especially something as complex as global financial markets, there’s every chance that all these factors are playing into rapidly rising bond yields.

It’s easy to paint a negative spin: with yields this high, there’s a strong case that overleveraged sectors could start to break soon.

Placing us at the precipice of a 2007/2008-like meltdown as borrowing costs cross the threshold from being manageable to wildly out of control.

Equally, hyperscalers could fuel another phase of extremely strong growth for the US and the broader global economy. That’s assuming they can manage their debt.

There are many unknowns and risks given what’s going on.

But being out of the market is not the solution, especially if you’re concerned about inflation eroding the value of your savings.

In my mind, while not perfect, commodity stocks provide a decent middle ground: they keep you invested but with manageable risk.

That’s because commodities offer modest leverage to the AI growth story. While also displaying historical resilience against sustained inflation.

Meanwhile, there’s still value in the resource market, particularly in traditional energy stocks.

And that potentially makes them less vulnerable if calamity does strike.

Those are the types of features you need as an investor.

As economists’ heads spin, keep your focus on what you can control.

Until next time.