Global bond yields have risen, with the US 10-year Treasury yield up around 0.2% in recent weeks, prompting scrutiny of spillovers into global equities. Since February, the increase has been concentrated at the short end of the curve, reflecting a sharp repricing of central bank policy expectations. Nominal yields are higher, but inflation-adjusted real yields remain low across the curve.
Global equities have recently softened as concerns about elevated valuations have countered robust Q1 US earnings. In the US, the S&P 500 and Nasdaq retreated. Japan’s Nikkei 225 also weakened, while the Euro Stoxx 50 was little changed. The report says the current pattern of yields and rates remains consistent with an environment equities can tolerate, while acknowledging the potential for volatility.
Rising Yields and Equity Market Resilience
Global bond yields are rising, and we see this creating tension for equities. With the US 10-year Treasury yield touching 4.75% last week, the highest level this year, some nervousness is understandable. However, we believe this is a move that the stock market can still tolerate.
The key reason for our view is that real yields remain low, even with nominal rates climbing. The latest April 2026 CPI report showed inflation persisting at 3.4%, meaning the inflation-adjusted yield is not yet restrictive enough to derail equities. This is especially true given that Q1 2026 S&P 500 earnings growth came in over 7% above initial estimates, providing a strong fundamental cushion.
Opportunities and Risks in a Volatile Market
This environment suggests that volatility is likely to stay elevated, creating opportunities for options traders. The VIX has been hovering around 19, up from its lows earlier in the year, reflecting the market’s uncertainty. This makes selling premium through strategies like iron condors or credit spreads on major indices potentially attractive, as we don’t foresee a major directional breakout just yet.
We are also considering strategies to hedge against further rate increases, which are the main threat. Watching options on short-term bond ETFs can provide a good signal on central bank policy expectations. For equity portfolios, purchasing protective puts is prudent, but structuring them as put spreads could be more cost-effective in this environment of heightened but not panicked fear.
In the coming weeks, we will be closely watching for the 10-year yield to approach the 5% level, a threshold that historically caused a significant equity pullback in late 2023. The next inflation data and central bank communications will be critical in determining if this becomes a “bad” move for bonds. For now, the weapon against stocks remains blunt, suggesting more chop than a drop.
