US bond yields hit 2002 highs, Jefferies warns of growing equity risk
Synopsis
Jefferies strategist Chris Wood is sounding a clear alarm: with the 10-year US Treasury yield at 5.34% and the 30-year at 5.69% — both at levels last seen in 2002 — the AI-earnings story that has held up US equities may not be enough cover much longer. The real test is whether the AI capex boom can justify its returns before rising yields force a valuation reckoning.
Key Takeaways
Jefferies strategist Chris Wood warned that rising bond yields pose an increasing risk to global equities in his newsletter Greed & Fear .
The 10-year US Treasury yield climbed to 5.34% and the 30-year yield to 5.69% — both at their highest since 2002 .
US equities have held up due to strong earnings driven by the AI capital expenditure cycle , but Wood flagged the sustainability of this boom as the key risk.
G7 government bonds are in a structural bear market, according to Wood, with persistently high yields threatening to tighten financial conditions.
Indian markets logged their eighth consecutive weekly decline , with rising US yields among the primary headwinds.
US bond yields have climbed to their highest levels since 2002, flashing a warning signal for global equity markets, according to Jefferies Global Equity Strategist Chris Wood. Writing in his widely followed newsletter Greed & Fear, Wood cautioned that while US equities have remained resilient so far — buoyed by strong corporate earnings and the artificial intelligence (AI) investment boom — the risk landscape is deteriorating rapidly as bond yields scale new multi-decade highs.
Bond Yields at Multi-Decade Highs
The yield on the benchmark 10-year US government bond rose to 5.34%, while the 30-year yield touched 5.69% — both reaching levels not seen since 2002. Wood described the latest surge in US Treasury yields as 'an important risk point for equity markets,' particularly as the US Federal Reserve has adopted a more hawkish policy stance.
The climb in yields raises a fundamental valuation question: at these levels, government bonds become a credible alternative to equities, potentially draining capital away from stock markets. Wood noted that government bonds across the G7 economies remain in what he characterised as a structural bear market, with persistently elevated yields threatening to tighten financial conditions broadly.
AI Boom Has Carried Equities — But for How Long
A critical pillar supporting US equities through this yield surge has been the AI capital expenditure cycle. Heavy investment by major technology companies in artificial intelligence infrastructure has meaningfully boosted corporate profits, helping US stocks absorb pressures from higher rates and geopolitical uncertainty. Wood acknowledged that earnings momentum has been 'driven in significant part by the highly earnings-accretive AI capital expenditure cycle.'
However, Wood flagged the sustainability of this boom as the biggest question now facing equity investors. The central concern is whether companies will generate sufficient returns on the enormous sums being committed to AI technology — and how long the current investment wave can continue at its current pace.
Historical Patterns Have Not Played Out
Wood noted that US equities have historically tended to underperform in the run-up to mid-term elections before recovering afterwards. That pattern has not materialised this year, he observed, largely because of exceptionally strong earnings growth. The absence of this historical correction has left valuations stretched at a moment when bond yields are adding fresh pressure.
Indian Equities Feel the Ripple
The global bond yield surge has not spared Indian markets. The Indian stock market recorded its eighth consecutive weekly decline through Friday, with rising US yields cited as one of the key factors weighing on investor sentiment. Elevated US yields strengthen the dollar, reduce the relative attractiveness of emerging market assets, and increase the cost of capital for Indian corporates with external borrowings — a triple headwind that analysts say is difficult to shrug off in the near term.
What Markets Are Watching Now
The two risks Wood identified — the longevity of the AI capex cycle and the structural bear market in G7 government bonds — are now front and centre for global fund managers. A sustained rise in yields beyond current levels could force a meaningful repricing of equity valuations, particularly in high-multiple technology names that have powered index gains. Any signal of slowing AI-related spending by major tech companies would likely accelerate that repricing. Market participants will be closely tracking upcoming corporate earnings, Fed commentary, and US fiscal trajectory in the weeks ahead.
Point of View
And by extension global risk appetite, for several quarters. If that cycle plateaus or the return-on-investment question sharpens — as it inevitably must — equity markets lose their primary insulation against a 5%-plus rate environment. For Indian markets, the eighth consecutive weekly decline underscores how deeply US macro transmission now shapes domestic sentiment, even when India's own growth fundamentals remain comparatively solid. The risk is that a US repricing event this time comes without the Fed pivot cushion that softened earlier corrections.
NationPress
4 Oct 2026
Frequently Asked Questions
Why are rising US bond yields a risk for equity markets?
When government bond yields rise to levels last seen in 2002 — as the 10-year US Treasury yield has at 5.34% — bonds become a more attractive alternative to equities, putting pressure on stock valuations. Higher yields also increase borrowing costs for companies, which can compress corporate profit margins over time.
What is Chris Wood's key concern about the AI investment boom?
Jefferies strategist Chris Wood's central concern is whether the enormous sums being committed to AI infrastructure will generate sufficient returns for the companies investing them. If the AI capital expenditure cycle slows or fails to deliver expected earnings, the key support for elevated US equity valuations would weaken.
How high have US Treasury yields risen?
The 10-year US government bond yield has risen to 5.34% and the 30-year yield to 5.69%, according to Wood's newsletter Greed & Fear. Both levels are the highest since 2002, marking a significant multi-decade milestone that Wood described as an important risk point for equity markets.
How have Indian stock markets been affected?
Indian equities have recorded eight consecutive weeks of decline, with rising US yields cited as a key factor weighing on investor sentiment. Elevated US yields strengthen the dollar and reduce the relative appeal of emerging market assets, creating a headwind for Indian stocks and increasing the cost of external borrowings for Indian companies.
What is the structural bear market in G7 bonds that Jefferies mentions?
Wood argues that government bonds across the G7 economies are in a structural bear market, meaning yields are likely to remain persistently elevated rather than reverting sharply lower. This prolonged high-yield environment could tighten financial conditions globally and make equities less attractive relative to fixed-income assets over the medium term.
