The bond market is flashing warning signs, and JPMorgan wants equity investors to pay attention. Grace Peters, co-head of global investment strategy at JPMorgan Private Bank, told Bloomberg Television that bond yields climbing into the 5% to 5.25% range pose a meaningful risk to stock valuations heading into what is historically one of the roughest months for fixed-income markets.
Her warning lands at a moment when yields across the globe are surging to levels that haven’t been seen in years, or in some cases, decades. The US 10-year Treasury yield has climbed to roughly 4.8%, its highest mark in nearly three years, while Japan’s 10-year government bond yield has blown past 3% for the first time since 1996. UK 30-year gilts, meanwhile, have reached levels not seen since 1998.
A wall of worry that keeps getting taller
Peters described the current environment using a familiar market metaphor: investors are climbing a “wall of worry.” The catalyst behind this bond selloff is a cocktail of forces that have been simmering for months. Persistent inflation remains stubbornly above central bank targets in several major economies. Escalating oil prices, driven in part by geopolitical tensions, are adding fuel to the inflationary fire. And a broader reassessment of where central bank interest rates are heading has forced fixed-income markets to reprice aggressively.
September’s reputation as a rough month for bonds only adds to the unease. Over the past decade, it has consistently ranked among the weakest periods for global fixed-income performance.
Central banks recalibrate
The Federal Reserve, European Central Bank, and Bank of Japan are all adjusting their policy outlooks in response to the inflation and energy price pressures. Japan’s situation is perhaps the most dramatic. The Bank of Japan has spent the better part of three decades keeping rates near or below zero. The fact that its 10-year yield has now crossed 3%, a level last seen in 1996, signals a tectonic shift in Japanese monetary policy.
The bull case hasn’t disappeared, but it’s getting harder to make
Not everyone at JPMorgan is sounding the alarm. Some of the bank’s equity strategists remain cautiously optimistic about global stocks, pointing to robust earnings momentum that they attribute to genuinely stronger economic activity rather than purely financial engineering or multiple expansion.
Despite the bond selloff, major indices have not experienced the kind of sharp correction that rising yields would traditionally trigger. At 4.8% on the 10-year, the US bond market is already offering a return that many equity sectors struggle to match on a risk-adjusted basis. Push yields into Peters’ danger zone of 5% to 5.25%, and the math tilts further against stocks.