Global Bond Yields Hit Multi-Year Highs as Wall Street Shrugs Off Inflation

Israeli investment house Pasternak Gilboa released its weekly economic review, highlighting soaring bond yields globally alongside surprisingly resilient US stock markets.

Record Bond Yields Worldwide

According to Pasternak Gilboa, the US 10-year Treasury yield touched 5.35% on Wednesday—its highest level since 2002—while the 30-year yield climbed to nearly 5.7%. Since the beginning of the year, the 10-year yield has risen by over 1%. Yields are hitting records globally as well: in Japan, the 10-year yield trades around 3.1%, a peak not seen since 1996, while in France, it touched 4.9% last week for the first time since 2002. The spread over German bunds widened to 150 basis points, the widest since the 2011 debt crisis, with French bond yields surpassing those of Italy and Greece.

By the end of the week, US yields moderated slightly, with the 10-year dropping to 5.24%. Nevertheless, Wall Street hit new highs: the S&P 500 rose 1.2% over the week (up 14.1% year-to-date), and the Nasdaq posted its fourth consecutive positive week, gaining 22% since the start of the year.

The Tech Concentration and Semiconductor Boom

Analysts at the investment house explain the disconnect: "The drivers behind rising yields, as we have previously detailed, are high inflation—partly fueled by global geopolitical conditions—heavy deficits, fiscal states of governments, and competition in the US debt market from tech giants needing to issue bonds to fund artificial intelligence investments."

On the equity side, when diving into index compositions, the main gainers are tech companies benefiting from the AI wave with low sensitivity to yield levels. Semiconductor firms lead the charge, posting another phenomenal year with an 85% surge, now accounting for over a third of the Nasdaq 100. Market concentration has also reached high levels, with the top 20 companies making up nearly 70% of the index. Alongside high returns, index concentration has become a significant risk factor.

Pasternak Gilboa explained the catalyst behind the semiconductor surge: "Samsung published a preliminary guidance for the third quarter that is hard to digest: an operating profit of about $80 billion—a 783% surge compared to last year and 20% higher than the previous quarter. This marks a quarterly record for Samsung and one of the highest operating profits ever for a tech company, driven entirely by a shortage of memory chips for AI servers—a shortage that Micron expects to last until 2028."

Meanwhile, TSMC reported September sales totaling NT$511.86 billion, up 54.6% year-over-year. Third-quarter revenues reached approximately NT$1.49 trillion, representing about 51% growth. However, reports surfaced indicating that OpenAI's annualized revenue run rate in September stood close to $50 billion, down from roughly $70 billion previously mentioned, putting some downward pressure on semiconductor and cloud stocks.

The Local Market and Geopolitics

Back in Israel, while Wall Street breaks records, the local exchange experienced a difficult week: the Tel Aviv 35 dropped 3.5%, the Tel Aviv 125 fell 3.4%, and the bank index lost 4.8%. The Tel Aviv 90 index shed 3.1%, deepening its year-to-date negative return to 7.5%—a massive gap compared to the Tel Aviv 35, which still shows a 12.1% gain. Mid-cap stocks representing the domestic economy are bearing the brunt of the pain this year.

On the geopolitical front, tensions remain high. Donald Trump stated that the US will not attack Iran before the midterms on November 3, but over the weekend suggested it might happen after all. Iran stepped up tanker attacks in the Strait of Hormuz, and the Houthis launched missiles at Riyadh's airport.

Looking ahead, earnings season kicks off with major US banks reporting, while in Israel, the Central Bureau of Statistics is set to publish the Consumer Price Index for September, with expectations pointing to a 0.3% to 0.4% decline.