Duration risk

Bond markets are sending a signal. Long-term yields are rising sharply across almost all developed economies at the same time. US 30-year Treasuries are again above 5%, UK Gilts are close to levels last seen during the Truss crisis, German long-term yields continue to move higher, and even Japan — after decades of ultra-low rates — is now seeing its 30-year government bond yield move above 4% for the first time since the launch of that maturity in 1999.

This is not a local phenomenon. Markets are repricing a world with structurally higher inflation risks, large fiscal deficits and growing geopolitical uncertainty linked to the Iran conflict and higher energy prices.

For equities, the message is important. Bond markets determine the price of money, and for almost two decades falling yields supported ever higher valuations, especially for long-duration growth stocks. Today the situation is changing and financing conditions are becoming progressively tighter.

And yet equities remain remarkably resilient because one force still dominates everything else: the AI CAPEX cycle. Massive investment by hyperscalers into infrastructure, semiconductors and computing power continues to support earnings expectations and investor optimism.

But the concentration risk is becoming extreme, particularly in technology and semiconductor stocks. If long-term yields continue to rise meaningfully, markets may eventually be forced into a broader repricing.

This is certainly a moment to give portfolios a serious reality check regarding duration, concentration and valuation risk.