Bond Yields Rise as Global Equities Hover Near Record Territory

The long bond march continues to rewrite the old market playbook. Despite elevated bond yields near historic levels, global equities remain near record territory. The US 10-year yield has been sustained above pre-Global Financial Crisis levels, but it's still below those seen in most of the four decades prior.

A capitalist economy can function with a 10-year yield near 5%. In fact, higher yields often reflect confidence that nominal growth will remain strong enough to justify them. However, an orderly increase is crucial; a sudden jump can trigger a crisis when leverage, liquidity, and crowded positioning collide.

The Federal Reserve remains caught between Kevin Warsh's hawkish Jackson Hole turn and Chris Waller's more forgiving inflation interpretation. Next week's meeting is close to a coin toss after conflicting signals from the new policy regime. The employment market itself doesn't look dangerously overheated; wage growth has cooled, but the labour market isn't rolling over.