The Bank for International Settlements’ Quarterly Review finds that government bond yields rose across major markets from June 1 to Sept. 3 as geopolitical tensions, tighter policy expectations and fiscal concerns increased the compensation investors demanded for holding longer-term debt. Ten-year yields rose 31 basis points in the United States, 34 basis points in Germany, 27 basis points in Japan and 24 basis points in the United Kingdom, while 30-year yields reached multidecade highs in many jurisdictions. Rising real term premiums, rather than inflation concerns, were a key driver as longer-run inflation compensation remained broadly stable. Risk appetite remained broadly resilient despite weaker artificial intelligence-driven equity momentum. Investors shifted toward smaller U.S. companies, non-U.S. markets and emerging market economies, while concerns about AI investment returns, technology company leverage and high profit margins weighed on large technology firms. Credit spreads stayed compressed, but issuance patterns showed greater selectivity as investment-grade borrowing grew, supported by long-maturity technology issuance, while high-yield bonds and leveraged loans slowed. The review also highlights financial stability risks from leveraged investment strategies. Repo-financed relative value trades have made hedge funds increasingly important holders of government and Nordic covered bonds, leaving markets exposed to funding or margin shocks. In Korean equities, leveraged exchange-traded funds, options and structured products amplified swings in major semiconductor stocks as these positions grew large relative to underlying market liquidity.
2026-09-14Bank for International Settlements
Bank for International Settlements finds long-term yields rose while risk appetite held firm
The Bank for International Settlements finds that long-term government bond yields rose as tighter policy expectations and fiscal concerns pushed up real term premiums, while inflation compensation remained stable. Risk appetite held firm through reallocations away from large technology companies and toward other sectors and markets, although investors became more selective in credit. The review also flags vulnerabilities from leveraged bond trades and equity products that can amplify market stress.