Sep 24, 2026 · 22 min
Rising bond yields expose hidden risks across global markets
Bond bombshell
Higher borrowing costs are squeezing governments, companies, households, and leveraged investors while raising the prospect of another financial shock.
- 1Strong growth, spending, inflation risks, and weak Treasury demand are pushing US yields sharply higher.
- 2Shorter US debt maturities reduce costs today but leave the government more exposed to refinancing stress tomorrow.
- 3The biggest immediate danger may be an unidentified leveraged position forced to sell into an already fragile market.
Don't miss
The hosts warn that an unknown leveraged position could fail and set off forced selling and wider financial contagion.
The brief
Katie Martin, Robert Armstrong, and Ian Smith examine a sharp government-bond sell-off that is raising borrowing costs across economies and markets.
They trace higher US Treasury yields to strong economic data, persistent spending, Middle East tensions, oil prices, Federal Reserve commentary, and weak demand for new debt.
The hosts debate whether yields mainly reflect stronger nominal growth or forced selling by leveraged investors, with Europe facing greater damage from weaker growth and high debt.
France and the UK emerge as fiscal pressure points, while the US faces rising refinancing risk after relying more heavily on short-term Treasury bills.
The standout warning is less about a named institution than an unknown leveraged position whose failure could trigger forced selling, contagion, and a broader market shock.
The episode closes with a victory lap over a correct yield forecast and sympathy for a Morgan Stanley banker who accidentally leaked more than 100 prospective deals.
What was said on this episode
23 statements · 2 positive · 19 negative · 1 mixed · 1 neutral
US government borrowing costs above 5% are harmful
“The 10-year yield, or borrowing cost, for the US government has now vaulted well above 5%. This is bad, OK?”
Listen at 0:45
Greater US borrowing raises its interest rate
“The more you borrow, the more your interest rate goes up.”
Listen at 3:39
Strong US economic growth is driving the bond-market sell-off
“what you've got here driving this bond market sell-off is a US economy that just won't stop.”
Listen at 4:09
Banning US diesel exports initially lowers prices but raises global inflation
“closing the borders to diesel exports will bring that price down at first. But boy, will it increase inflation in the rest of the world.”
Listen at 5:48
The US 10-year yield broadly tracks nominal GDP growth
“Roughly speaking, the 10-year bond yield travels with nominal US GDP growth.”
Listen at 7:00
Forced hedge-fund selling is magnifying government-bond yield increases
“It feels like we're seeing some of those effects come through that are magnifying the rises in yields.”
Listen at 8:38
Higher US Treasury yields raise borrowing costs globally
“The result of what we're seeing in treasuries at the moment is that it's pulling borrowing costs higher for everybody else.”
Listen at 9:34
High yields are especially damaging to stocks amid weak domestic growth
“for a stock market that's dealing with weak domestic growth, high yields are really poison”
Listen at 10:01
French 10-year yields have risen substantially above German yields
“the French 10-year government bond yield has stretched. well ahead of Germany.”
Listen at 10:50
Rising yields are particularly harmful for highly indebted countries such as France
“France is one of those more exposed indebted countries as a result of this war. And it's just for certain countries. rising yields in themselves are very bad.”
Listen at 12:27
Shortening US debt maturity increases future refinancing problems
“if you shorten your maturity stack into a rising rate environment, you're just storing up trouble for the future.”
Listen at 14:05
Treasury bills may approach one-quarter of US debt within several years
“the proportion of Treasury bills in the overall US debt stock. which is, you know, on like Wall Street bank estimates in the coming couple of years, expected to approach almost a quarter of the overall US debt.”
Listen at 14:33
Higher interest rates can slow economic growth
“Channel number one is you raise rates to the point where you slow the economy.”
Listen at 16:22
Slower economic growth reduces corporate profits and stock prices
“That slows corporate profits. Stocks go down.”
Listen at 16:40
Higher rates will not soon slow the US economy or shift investors from stocks
“I don't think either of those things is happening very soon in the United States.”
Listen at 16:58
Leveraged-market losses can spread to unrelated markets
“Everything is interconnected. And that's how these things can blow up in places that you're just not looking.”
Listen at 17:31
Excessive rate increases can cause financial crises, recessions, and market declines
“you raise rates until you have a financial crisis. The financial crisis causes a recession. And markets go down in recessions as a rule.”
Listen at 17:36
Hidden leverage is the immediate market risk from rapidly rising rates
“The most immediate risk to markets from a rapid increase in interest rates is There's some horrible leverage somewhere.”
Listen at 18:45
Investors are unlikely to buy bonds merely because yields have risen
“I don't think people are going to rush to the bond market because yields are higher.”
Listen at 19:17
The AI boom will prevent higher rates from slowing the US economy soon
“I don't think the U.S. economy is going to be slowed very soon by these rates because the AI boom is so price insensitive.”
Listen at 19:25
AI companies may tolerate a 50% increase in Nvidia GPU prices
“If a company is willing to eat a 50% price increase on its NVIDIA GPUs”
Listen at 19:34
US Treasury yields would continue rising
“I correctly said... that yields were going to keep going up.”
Listen at 20:37
A Morgan Stanley banker leaked a list of over 100 prospective deals
“The Morgan Stanley banker who accidentally leaked an internal document listing more than 100 investment banking deals the firm is pitching.”
Listen at 21:13
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.