The Bank of England’s latest semi‑annual financial stability report, released this week, marks the third consecutive warning that stock‑market valuations are stretched. The report highlights the S&P 500’s falling excess CAPE yield, a signal that equities are priced near the lowest level since the dot‑com era. The central bank cautions that a sharp correction in U.S. AI stocks could erase 2.2 percentage points of UK output, underscoring the interconnectedness of global markets.

Leveraged exchange‑traded funds remain a flash point. Though total leveraged holdings sit at $200bn versus $15tn in unlevered equity ETFs, the use of margin can magnify price swings. The BoE points to the 2024 summer sell‑off as evidence that thin liquidity can turn small shocks into brief but violent declines during the doldrums of summer.

Free‑cash‑flow erosion at hyperscalers has accelerated debt issuance. Since 2025, the capital‑expenditure bill has outpaced profits, forcing these firms to tap bond markets in every major currency. This year’s issuance already eclipses last year’s and is projected to overtake U.S. banks as the largest sector of investment‑grade debt by the end of the year. The scale rivals that of UK gilt issuance, with the BoE describing the move as “the new gilts.”

The report also flags off‑balance‑sheet vehicles, circular financing and private‑market taps as hidden risks. Market participants must factor these exposures into risk models, lest a sudden correction leave debt‑laden firms unable to refinance and trigger a broader pullback from risky assets, tightening corporate financing.