[Interest Rates and Stocks] Why Government Bonds Are More Popular Than Stocks

Thank you for always reading. This is Okuriputo.

On a weekend night, our family held our annual ‘Family Trip Budget Meeting’.

Sitting around the kotatsu in the living room, my wife tapped away at her calculator and, with a cold gaze directed at me, said this:

‘Hey. If the mortgage interest rate goes up, the extra interest payments will be deducted from your monthly allowance. That’s the rule.’

…….

My spine froze. My allowance is already under such extreme austerity that I hesitate even to buy a canned coffee from the company vending machine. If it gets cut any further by the invisible pressure called interest rates, my lunch will be limited to bean sprouts every single day.

Hey, don’t apply monetary tightening to my lunch money!

There isn’t a day that goes by without seeing news about interest rates in the world.

The news often says, ‘Stocks fell because interest rates rose,’ but why does the movement of interest rates in a distant world cause our precious stocks to fall in the first place?

Let’s unravel that mystery along with my soon-to-be-slashed allowance.

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Understand today’s terms in 30 seconds

• In a nutshell: Interest is the rental fee for money, and when it rises, the appeal of holding stocks relatively diminishes.

• Why this matters today: Because investors around the world are nervously watching the movements of interest rates, which influence the direction of stock prices.

• What beginners should be careful about: Just because interest rates rise does not mean all stocks will fall uniformly; the impact varies significantly depending on the industry.

What exactly is an interest rate? Why does it become a rival to stocks?

The term ‘interest rate’ sounds difficult, but to use an analogy, it is a ‘rental fee for money’.

When you lend money to someone, it is like a service fee where you say, ‘In exchange for lending this to you, please pay me back with this much extra as a token of appreciation.’

And what investors around the world check with eagle eyes every day is the U.S. 10-year Treasury yield. In a nutshell, this is like the ‘star player of interest rates’ that the whole world is watching.

Even in recent data, the U.S. 10-year Treasury yield is hovering at 5.244%.

Now, why does this interest rate become a rival to stocks when it rises?

The reason is very simple: the interest earned on deposits and government bonds increases.

Government bonds are like debt issued by a country, and U.S. Treasury bonds, for example, are considered extremely reliable. If you can get solid interest just by leaving your money in such a secure asset, anyone’s heart would waver, right?

Stock investment is a world of rough seas where prices rise and fall depending on corporate performance. You might make a fortune, but there is also the risk of losing a lot.

This is very easy to understand if you compare it to a budget meeting for a family trip.

If there is a promise that you will definitely get premium ice cream if you stay home and watch the house (government bonds with interest), would you bother going to a crowded amusement park where you might get lost and end up crying (risky stocks)?

‘If I can definitely get ice cream, it’s better to stay home and be cozy under the kotatsu, isn’t it?’

The number of people who think that way increases.

In other words, my way of spending holidays is also super safety-oriented, where I won’t move an inch from home if I can definitely get snacks.

Don’t justify a father’s reclusiveness on his days off!

Humans are fickle; when the path to safely increasing money becomes wider, fewer people will bother taking the risk to buy stocks. As a result, money is pulled out of stocks and moves toward government bonds and the like, making stock prices more likely to fall.

Bullish me: “No way, taking risks is what a man’s romance is all about!”
Bearish me: “But if my money is guaranteed to grow, isn’t that safer…?”

Professional investors grapple with this conflict every single day.

The mechanism behind why stocks driven by future dreams are hit hard by interest rates

The reason stocks tend to fall when interest rates rise isn’t just because they lose customers to rivals. There is a much more brutal rule of calculation at play.

In technical terms, there is a concept called the “present value of future earnings.”

In short, it is a mechanism where “the 100 yen you are scheduled to receive in 10 years looks smaller when converted to its present value in a world with high interest rates.”

Companies where most of the profits are expected in the distant future are called growth stocks.

To use an analogy, they are like a venture company that passionately declares, “We’re in the red right now, but we’re going to make an incredible invention in the future and change the world!”

It reminds me of a time when I was waiting for the elevator at work and an overly ambitious new hire stood next to me, talking with eyes full of sparkle.

“Manager! My new business idea will increase the company’s profits tenfold in 10 years!”

Under normal circumstances, I might be able to listen and say, “Oh, that’s a promising dream.”

However, what if the interest rate on the company’s total debt has skyrocketed, and the burden of daily interest payments is weighing heavily on us?

“Look, I appreciate your big future potential, but first we need to figure out how to pay this month’s interest…”

You would end up breaking the reality to them while breaking into a cold sweat, wouldn’t you?

For companies with high debt or those in the real estate industry, rising interest rates increase the burden of interest payments to banks, making it easy for daily performance to be squeezed.

Furthermore, the more a growth stock was bought with dreams of the future baked into its price, the more likely it is to face a stock price correction, as investors decide, “If interest rates are high, we have to strictly discount the value of those profits 10 years from now.”

In other words, my grand life plan of ‘I’ll be promoted to department manager in 10 years and my annual income will skyrocket’ is easily discounted in value when faced with the reality of rising mortgage interest rates.

Don’t go discounting my future value without permission!

Before I can even talk about my great success in 10 years, I’m running out of breath from today’s interest payment burden. This is the mechanism behind why growth stocks are particularly susceptible to damage when interest rates rise.

By the way, for those who want to carefully organize how to read chart patterns, there is a book by Nobuhiro Tomatsu called ‘The Complete Guide to Stock Price Charts: Knowing When to Buy and Sell at a Glance.’ It might be healthier to open a book than to stare at the order board on your smartphone on the commuter train and give yourself an ulcer (speaking from personal experience).

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Do they all fall at once? The pitfall that beginners fall into

Reading this far, you might feel like panicking and thinking, ‘If interest rates go up, stocks are all finished! Sell everything!’

But wait a minute. The market isn’t that simple.

When interest rates rise, it doesn’t mean all stocks fall uniformly; the impact varies greatly depending on the industry, cash on hand, and debt situation.

For example, financial institutions like banks.

When interest rates rise, banks find it easier to increase their margins when lending money to people. Simply put, a margin is ‘the difference between the cost of acquiring money and the price at which it is lent, i.e., the profit.’

Since a bank’s profits are more likely to increase when lending interest rates go up, rising interest rates can actually be a tailwind.

Also, value stocks, which are bought with an emphasis on current dividend levels and undervaluation, are worth noting.

In short, value stocks are ‘stocks that are valued more for the cash and solid profits they have on hand right now than for dreams in the distant future.’ Compared to growth stocks that run on future dreams, they tend to remain more resilient even when interest rates rise.

My father-in-law is the type who panics without knowing any of this.

My father-in-law, who usually becomes suddenly talkative the moment the topic of stocks comes up when we meet during the holidays, changed his expression and pulled out his smartphone the instant he saw the news ticker on TV saying ‘Interest Rates Rising!’

‘Oh no! If interest rates go up, all stocks will crash! I have to sell everything right now!’

He was making such a scene, trying to dump all the stocks he owned.

In other words, my father-in-law’s panic was like someone seeing it start to rain and deciding to strip off their boots, umbrella, and raincoat, only to run outside barefoot.

No, don’t go out and get soaked on purpose!

If you panic and dump all your stocks just because interest rates have risen, you might end up in a sad comedy where you just stand there watching bank stocks and undervalued stocks rise happily without you.

It is very important to keep the perspective that not all stocks move in the same way.

So, how should we use this?

When you watch market news starting tomorrow, please try to keep the following perspective in mind.

• What to do: On days when the U.S. 10-year Treasury yield moves significantly, compare how the price movements of your growth stocks and bank stocks differed.

• What not to do: Selling off all your stocks at once just by looking at news about rising interest rates.

If you can observe on a day when interest rates rise and think, ‘Oh, growth stocks are a bit sluggish today, but bank stocks are holding up well,’ then you have already joined the ranks of respectable intermediate investors.

Epilogue

Now, regarding the budget meeting for our family trip that I mentioned at the beginning, I will report on what happened afterward.

My wife read the minutes with a solemn expression.

‘As a household defense measure during this period of rising interest rates, we hereby pass an emergency bill to reduce my husband’s monthly allowance by 3,000 yen.’

….

The Nikkei Stock Average closed at 69,031 yen , down 11 yen from the previous day. That is a decline of 0.02% .

The market decline was extremely mild at just 0.02% , but my wallet recorded a historic double-digit percentage crash in one fell swoop.

Before interest rates in the world rise, my personal financial defense line is about to collapse.

Starting tomorrow, I plan to cut down on waiting for the office elevator, use the stairs to burn body fat, and live modestly by bringing my own water bottle.

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List of Data Sources and References

The terminology explanations and numerical values in this article are based on the following publicly available information sources.
・Japanese Stock Daily Report (Confirmed value of US 10-year Treasury yield)
・Bank of Japan “Monetary Policy”
・Japan Exchange Group (JPX) “Learning Content for Investment Beginners”
・Financial Services Agency “Asset Management Simulation/Investment Basics”
・US 10-year Treasury yield: FRED (Federal Reserve Bank of St. Louis) (As of market close on 2026-10-09)
・Nikkei Stock Average closing price: yfinance (Yahoo! Finance) (As of market close on 2026-10-09)

Notes and Disclaimers

* This article is a column in which “Okuriputo,” a humble middle manager in his 40s, personally breaks down terminology and market mechanisms for those who have just started investing.
* While fact-checking is performed using AI and various scripts, there is a non-zero possibility that information may differ from the latest data due to system revisions or data update timing. Please be sure to check the official website for the latest information on systems and conditions.
* This article does not recommend or solicit the buying or selling of specific financial products or stocks. Please make final investment decisions and judgments at your own risk.

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