The 10-year US government bond yield has pushed through 5 per cent, a level not seen since 2007. Karen Ward, chief market strategist for Europe, Middle East and Africa at JPMorgan Asset Management, explores whether this is a buying opportunity or a step toward 6 per cent. One argument for higher yields suggests the US economy is strong enough to withstand higher rates, with AI-driven productivity gains potentially offsetting a shrinking workforce.

However, Ward notes that rising borrowing costs are already impacting the housing market and the AI boom, with hyperscalers facing constraints as free cash flow dwindles. A second argument points to investors demanding a higher premium for "bad policy" and inflation risks, especially given the US deficit nearing 6 per cent and potential costs from the conflict in Iran. Offers of $5,000 per household ahead of the midterm elections under President Donald Trump's party suggest an open cheque book, but a credible central bank like the Federal Reserve, under new chair Kevin Warsh, may counteract fiscal stimulus to control inflation.

The final argument—that bonds have lost their diversification value—is challenged; while stocks and bonds may fall together during inflation shocks, the greater risk is a correction in the tech sector, where AI-related companies make up 50 per cent of the S&P 500 and 50 per cent of the emerging market benchmark.