Rising bond yields represent a normalization of interest markets and robust growth, argues one economist

Bond yields across the world are hitting major milestones daily but this may not necessarily be the negative most investors think it is

Across the globe, bond yields are setting new highs with 10-year benchmarks at their steepest for thirty years in Japan, fifteen years for Germany and 18 years in the U.K. But not everyone is worried that the higher interest rates will hurt stocks.

Economist Matthew C. Klein wrote a piece in his Substack column Tuesday in which he contends that "rising bond yields are good actually" because they are illustrative of strong growth - with incomes and spending currently rising 7% per annum and a robust demand for capital, especially from the buildout of AI infrastructure. He also said it was a normalization of rate markets from the dysfunctionally low era that followed the global financial crisis of 2008.

"The low rates that too many people had come to view as normal were symptoms of deep social pathologies", argues Klein.

Klein also points out that despite the uptick in bond yields that many commentators attribute to unsustainable fiscal deficits has caused "so far zero evidence of any looming slowdown in U.S. economic data." In fact, Klein reckons that the increased probability markets now attach to a Fed hike in September after the hawkish commentary from Chair Kevin Warsh last Friday, is "mostly good news." He adds, "consumer spending and business investment have both become far less sensitive to credit conditions than in the past."

Related: From the U.K. to Japan, bond yields are jumping as U.S. bonds tumble

Publishing his outlook for the remainder of the year on Tuesday, JPMorgan's strategist Mislav Matejka also finds that "we do not expect rising bond yields to present an insurmountable obstacle for stocks." His rationale is that those higher rates "reflect stronger activity momentum."

This relatively phlegmatic approach to an issue that has been blamed for stalling equity markets of late explains why Matejka and his team stay bullish into year-end. The drivers for further upside in stock markets globally are strong earnings delivery and earnings-per-share revisions higher, the possibility that central banks may deliver less tightening than investors fear and rebounding purchasing managers indices that show stronger activity momentum.

Are central bank hikes really needed when CPI is set to fall? argues JPM Morgan strategist Matejka

Matejka finds European PMI revisions in particular are up for three consecutive months and this augments his investment case for European VGK and international stocks VXUS, which should also be bolstered by dollar DXY peaking. (For U.S. investors, a weaker dollar increases the returns from buying in stock markets denominated in other currencies.)

Equities have typically liked weaker USD, especially International and EM

Matejka doesn't believe rate increase expectations will get more hawkish than they already so, and so while the dollar has been acting as a safe-haven (of sorts) since the Hormuz crisis began, it may start to depreciate again. That plays into the hands of gold (GC00) which has lost around 20%-25% since the outbreak of hostilities in the Middle East. Matejka expects gold to bounce and suspects the debasement trade - a preference for hard, inflation-proof, safe-haven assets as fiat currencies devalue - is back in play.

Helping the argument for international stocks, Matejka thinks U.S. valuations look "stretched" at 20 times forward earnings but international and emerging stocks look much cheaper. After outperforming the U.S. by fifteen percentage points in 2025, the MSCI All Cap World Index is 4% better this year also and the report predicts this trend will continue. JPMorgan's year-end target for the S&P 500 index is 8000, around 3% higher from here.

Matejka sticks to his overweight emerging markets EEM at the expense of developed markets call and highlights a stabilization in the memory trade or a recovery in the Chinese economy as potential drivers.

-Jules Rimmer