Has the Market Trend Changed? The New Role of 'Bonds' Re-evaluated Amid Rising Interest Rates

The United States, Japan, Germany, and the United Kingdom. As of September 2026, bond yields in major global economies have reached their highest levels in over a decade. As the transition away from a low-interest-rate environment progresses, global financial markets are shifting toward a new interest rate landscape.

While some may be concerned about how rising bond yields will affect their investments, this is not necessarily a negative development for long-term wealth creation.

In this article, we will explain the relationship between interest rates and bonds while reviewing the movements of bond yields and historical trends in returns.

Looking back at the movements of bond yields to date

First, let’s look at the movements of bond yields in each country over time.

Government bond yields fell significantly due to successive shocks (up to 2020)

In the early 2000s, 10-year government bond yields in countries other than Japan hovered between 3% and 5%. Subsequently, a significant economic slowdown triggered by the 2008 financial crisis led to a situation where prices did not rise.

Furthermore, to respond to successive shocks such as the financial crisis and the European debt crisis, central banks in various countries embarked on large-scale monetary easing. In such an environment, government bond yields fell significantly worldwide, and 10-year government bond yields in Europe and Japan temporarily turned negative.

The COVID-19 shock and the inflation shock (2020–2025)

During the COVID-19 shock, bond yields remained at generally low levels as central banks in various countries lowered policy interest rates to support the economy. However, a subsequent global inflation shock (a significant rise in prices) occurred, and to curb inflation, central banks in various countries raised policy interest rates rapidly and significantly. Along with this, bond yields also rose sharply.

Following this, as inflation peaked out, central banks in major developed countries—with the exception of Japan, which was late to start raising rates—shifted their policy from ‘rate hikes’ to ‘rate cuts,’ causing the upward pressure on bond yields to temporarily subside.

Renewed upward pressure on interest rates (2026–)

However, as of 2026, bond yields have turned upward again. The main factors considered are as follows.

1. Resurgence of inflation concerns and a shift in policy toward rate hikes
Since the end of February 2026, resource prices such as crude oil have soared due to escalating tensions in the Middle East, and there have been concerns about rising transportation costs due to disruptions in maritime logistics.

Furthermore, against the backdrop of a rapid expansion in AI (artificial intelligence) demand, active capital investment in areas such as data centers continues. These movements are not only driving up the prices of components like semiconductors, but are also beginning to spill over into the prices of products such as smartphones and home appliances.

In response to these concerns about a global resurgence of inflation, financial authorities in various countries are being forced to shift their policies from ‘rate cuts’ back to ‘rate hikes’.

2. Resilience of the global economy
Even while uncertainty surrounding the situation in the Middle East continues, the global economy as a whole maintains a strong trajectory.

In the United States in particular, employment, private corporate earnings, and capital investment are expanding steadily, and personal consumption remains firm, supported by a low unemployment rate.

In Japan as well, although some cautious movements are observed, corporate earnings remain at a high level, and capital investment is on a moderate upward trend. Personal consumption also remains resilient against the backdrop of improvements in the employment and income environment.

3. Intensifying competition for capital due to bond issuance by hyperscalers
Another major factor driving the rise in interest rates is the intensification of competition for capital in the market. Currently, corporate capital investment is surging due to technological innovation, and huge amounts of funds are required in the market.

Along with this, a group of giant technology companies known as ‘hyperscalers’ are actively raising large-scale funds through corporate bond issuance and other means. This rise in enormous funding demand is, as a result, a factor pushing up current interest rates (yields).

Rising interest rates are a sign that ‘bond profitability’ is increasing

Generally, ‘rising interest rates’ temporarily push down the prices of already issued bonds, so it may seem like a negative event at first glance.

However, in bond investment, it is important to focus not only on daily price fluctuations but also on the ‘interest income (income gain)’ that can be received periodically. In an environment where interest rates have risen, the interest on newly issued bonds is set higher, so in the medium to long term, the interest received will increase, leading to an improvement in the overall profitability of the portfolio.

Also, for existing bonds, as prices fall, the ‘current yield (*),’ which is the ratio of interest to the investment amount, improves relatively.

In other words, the global rise in interest rates can be seen as a positive change that allows us to escape the ‘ultra-low interest rate era’ that has lasted for many years and regain the appeal of bonds as a source of ‘returns’.

*Current yield: The total annual interest (coupon) of a bond divided by the current bond price (purchase price)

So, how will this global interest rate hike trend affect the management of bond ETFs (such as AGG) that WealthNavi invests in?

In the second part of this article, we will unravel the mechanism of returns in bond ETFs and the new role that bonds play in the ‘global diversified investment’ that WealthNavi aims for.

*The above content is an example based on past data, reports, etc., and does not guarantee future economic environments or investment results.

Written by: WealthNavi Inc. Research & Quants Team

---

[Regarding Published Information]
This content is intended for informational purposes only and is not created for the purpose of soliciting investment or other actions. Please make final investment decisions, such as the selection of securities and trading prices, at your own discretion. While the information in this content has been obtained from sources we believe to be reliable, we do not guarantee the certainty of those sources. Please note in advance that we cannot answer any questions or inquiries regarding the contents of this document. Furthermore, the contents of this document are subject to change without notice.

The information in this content is current as of the date of publication (or update). Although it is created based on information considered generally reliable as of the publication date, we do not guarantee the accuracy or completeness of the information. We are under no obligation to update or correct this content regarding new information, future events, or other matters. This content does not provide definitive judgments. Final decisions are to be made by the customer, and the company is not involved in and assumes no responsibility for such decisions. Please note in advance that we cannot answer any questions or inquiries regarding the contents of this document.

The company assumes no responsibility for any damages incurred based on this content.

[Risks and Costs Associated with Trading Financial Instruments, etc.]
Trading financial instruments provided by the company may result in losses due to fluctuations in interest rates, currency prices, market prices in financial instrument markets, or other indicators, and there is a risk that the invested principal may be lost.

Before using our services, please thoroughly read the pre-contract documents and other materials.

Risks and Costs Associated with Trading Financial Instruments, etc. (https://www.wealthnavi.com/rule/01.html)

WealthNavi Inc.
Financial Instruments Business Operator, Kanto Local Finance Bureau (Kinsho) No. 2884
Member Associations: Japan Securities Dealers Association, Japan Investment Advisers Association