---
title: "Higher and Higher: Yields, Rates and Inflation: A Quick Financial Market Review for the September Quarter 2026"
description: Explore the rising bond yields and inflation impacting markets, as investors remain resilient amid economic challenges in the September quarter of 2026.
---

[Blog](https://www.strategyfirst.com.au/blog)

# [Higher and Higher: Yields, Rates and Inflation: A Quick Financial Market Review for the September Quarter 2026](https://www.strategyfirst.com.au/blog/higher-and-higher-yields-rates-and-inflation-a-quick-financial-market-review-for-the-september-quarter-2026)

 Written by [Dr Steve Garth](https://www.strategyfirst.com.au/blog/author/dr-steve-garth) | 15 October 2026, 2:00:00 am Z

The September quarter has been defined by rising bond yields, with central banks around the world raising interest rates or signaling further hikes.

High oil prices, US government debt levels, persistent inflation, and competition for capital from AI hyperscalers have all contributed to the spike in yields.

And yet, stock investors appear unconcerned.

 

Suddenly, the bond market is getting more attention than the stock market, as rising global bond yields are causing widespread concern among central bankers, fund managers, and ordinary investors. That's because government bond yields of almost every major economy have soared in 2026.

The yield on what is perhaps the world's most important asset, the 10-year U.S. Treasury note, rose above 5% in recent weeks, the highest it's been since 2007. Similarly, the 10-year yield on Australian government bonds is also above 5%, which will continue to weigh on household spending, as many borrowing rates are influenced by these yields, from home and car loans to corporate borrowing.

As the chart below shows, the Australian and US yields have been behaving in lockstep over the quarter, even though there are different underlying reasons. The main driver of higher yields globally is persistent inflation, largely because geopolitical tensions are driving up the prices of commodities such as oil and grains, which feeds through to consumer inflation.

Australia, though, is in better shape than many of the countries at the center of those worries. It has a AAA credit rating, its government debt is relatively low, and the RBA has shown it is willing to raise interest rates to get inflation under control.

In the US, there are three additional sources of higher yields: a surging economy, driven largely by the data center investment boom; competition for high-grade (investment grade) debt from the AI “hyperscalers” (Alphabet, Amazon, Meta Platforms, Microsoft and Oracle), which are issuing massive amounts of bonds to fund the data center build-out; and soaring US government debt levels.

*Source: www.investing.com*

High inflation leaves central banks no choice but to raise interest rates in order to bring inflation back into their target bands, but this also has the effect of pushing bond yields higher as traders start pricing in the risk of further interest rate increases in both Australia and the US.

In Australia, the RBA raised interest rates by 25bps at their September meeting and have left open the possibility of an additional rate rises by the end of this year. August inflation figures showed trimmed mean at 3.6% over the year – unchanged from the July reading, but still well above the top of the RBA’s 2–3% target band. Reserve Bank officials have made it clear in recent weeks that their tolerance for inflation persistently above the top of the 2–3% target is wearing thin.

A similar story is playing out in the US. US economic data has had a strong run lately including solid monthly payrolls and firmer inflation readings. Rate hikes are now expected from the US Fed, with markets pricing in two more before the end of the year (see the chart below) and another one in early 2027.

*Source:  www.tradingeconomics.com* 

The Australian stock market, concentrated in financials and mining companies, had a strong start to the quarter but was knocked down by the July inflation print, and has finished flat for the quarter, returning a modest 1.3%. Over the last 12 months the market has recorded a gain of 2.7%.

*Source: www.investing.com*

The 12-month result has been anchored by Australia’s big resource companies, which have been supported by the commodity boom with higher oil prices, and the critical minerals that are essential for the high-performance hardware and data centers that drive artificial intelligence. On the other hand, the Big Four banks have been flat over the year, while the Consumer Discretionary sector, one of the top 5 ASX sectors in terms of market capitalization, is down almost 20% over the last 12 months.

*Source: FE Analytics*

The negative performance of retail stocks is an indication that the Australian consumer is feeling the weight of rising interest rates, elevated inflation eroding purchasing power, falling home prices, and low consumer sentiment. All these factors will dampen Australian economic growth, which is expected to remain soft over the next 12 months.

But the story is different in global stock markets. Despite the rough macro backdrop, enthusiasm for all things AI continues, as the Nasdaq 100 closed at near record levels by the end of the quarter. Year to date, the Nasdaq composite is up 19% (in USD), while the broader S&P 500 Index is up 16% (in USD).

The chart below shows the 3-month and 12-month returns (in AUD) of the Developed Markets (with the US, Europe and Japan as the major constituents). Japan returned near 20% (in AUD) over the last 12 months, powered by AI and semiconductor stocks.

*Source: FE Analytics*

In the Emerging Markets, performance is dominated by the AI hardware trade, although China is lagging well behind. Despite retreating in the September quarter, for the 12-month period Korea has returned 140% and Taiwan 75%, driven by the semiconductor manufacturers Samsung, SK Hynix and Taiwan Semiconductor Manufacturing Company Limited (TSMC), which is the world's largest dedicated semiconductor foundry, holding approximately 70% of the global foundry market.

*Source: FE Analytics*

In summary, the quarter has been dominated by rising yields, principally reflecting inflation expectations. Inflation in Australia and in most major markets was already stubbornly high before the conflict in Iran began, but in the September quarter oil prices surges again to be above $US100 a barrel. The main factors behind this renewed oil price rise have been falling inventories, lasting supply constraints and ongoing concern about an escalation of the war.

Central banks have little option but to raise rates, and the market expects further increases before the end of the year and into 2027 in both Australia and the US. Perhaps the biggest surprise then is that equities have remained remarkably resilient despite these headwinds, powered by solid economic growth and strong earnings.

Higher yields and expectations around further interest rate increases suggest that markets are entering a more challenging period as we go into the last quarter of 2026, but the foundations of investing remain the best course: stay disciplined in the portfolio that has been designed to meet your long-term goals.

 

*This article was written by Dr Steve Garth - Principal of Principia Investment Consultants.*

*Disclaimer:  Although information is derived from sources considered and believed to be reliable and accurate, Principia and its employees are not liable for any opinion expressed or for any error or omission that may have occurred in this presentation. This presentation is of a general nature only and has been prepared without considering any person’s particular investment objectives, financial situation, or particular needs.* 

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