Global bond markets are under persistent pressure, but equity investors have chosen to disregard it. As US Treasury yields hit two-decade highs and European bond markets fell to multi-decade lows, global stocks not only avoided being dragged down but are closing in on all-time highs. This divergence between bonds and stocks has become the central narrative in markets right now.
On Tuesday, US equity futures edged higher, with the S&P 500 just shy of its first record high since August, while Nasdaq 100 futures consolidated further at record levels. Meanwhile, previously sold-off US Treasuries and European bonds rebounded, with the 10-year Treasury yield pulling back 3 basis points to 5.28% after touching 5.31%, its highest since 2002. Softer oil prices also eased some concerns about inflation making a comeback.
European markets recovered in tandem. The Stoxx Europe 600 extended gains to 1%, touching an intraday high and on track for its first three-day winning streak in nearly a month. French and Italian bonds, which had long underperformed, led the advance, while the euro stabilized after hitting a 17-month low.
Stocks Ride Through the Bond Storm, Earnings Are the Key Support
Surging bond yields are typically seen as a drag on equity valuations, but that logic is now being challenged.
Investors' attention has shifted from interest rate risk to corporate earnings, macroeconomic data, and the artificial intelligence-driven capital expenditure wave. "What's driving this year's gains is earnings growth, not valuation expansion," said Stephan Kemper, Germany head at BNP Paribas Wealth Management. "Earnings per share revisions remain strong, and US companies are raising guidance above average. We believe this pattern still has room to continue."
The "Magnificent Seven" tech stocks all rose in early trading, providing direct momentum to the market. Mohit Kumar, chief European economist at Jefferies, noted that current stock market breadth is narrow, mainly driven by the tech sector. "Strong earnings, sustained capital expenditure, and ample system liquidity should continue to support the picks-and-shovels trade."
AI Investment Boom Continues, Capital Flows in Multiple Directions
The activity in AI-related trades provides additional evidence for the stock market rally.
OpenAI is in talks with several UAE sovereign investment funds to seek anchor investment support for its $30 billion funding round. Meanwhile, China's DeepSeek and Moonshot AI are each advancing multi-billion-dollar financing rounds.
On the hardware side, AMD CEO Lisa Su predicted that chip demand will remain at "extremely high" levels for years to come, even as the industry still faces AI safety challenges. Google's parent company Alphabet is reportedly close to reaching a nuclear power procurement agreement with Constellation Energy, reflecting tech giants' urgent need for stable electricity supply.
These密集 capital flows confirm the market's judgment that the AI sector will maintain high热度 even in a high interest rate environment.
The Two Sides of High Yields: Threat or Signal?
Does the continued rise in bond yields mean accumulating risk, or is it evidence of a strong economy? The market is divided on this.
BlackRock analyst Vivek Paul believes the question deserves careful consideration: "If the rise in yields is driven by a stronger growth outlook, the AI wave, and so on, then it's not necessarily bad for markets." This view represents the core logic of some current bulls 鈥?as long as the rise in yields stems from growth expectations rather than runaway inflation or fiscal pressure, the situation of both stocks and bonds coming under pressure does not necessarily persist.
However, concerns have not dissipated. Bridgewater founder Ray Dalio warned that the US is approaching the limits of its debt cycle. The 10-year UK gilt yield reached 5.36%, similar to US Treasuries, while the German 10-year yield also rose to 3.44%. The structural pressures in European bond markets should not be ignored either.