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The third quarter of 2026 was defined by a renewed energy shock as US-Iran hostilities resumed, a pronounced climb in global bond yields, and significant volatility in AI-related stocks. The collapse of de-escalation efforts effectively closed the Strait of Hormuz again, driving a surge in crude and refined product prices. Fixed income came under heavy pressure as inflation fears intensified and investors grew more concerned about rising deficit spending at a time when government debt levels are already elevated. Heavy bond supply from both governments and AI-related borrowers added further pressure. The Fed, ECB, and Bank of Japan all raised rates in September, and yields rose across the curve, with the US 10-year reaching its highest level since 2007. Despite these headwinds, global equities rose 1.9% (MSCI World)i, supported by resilient economic growth, robust corporate earnings, and strength in a narrow group of US technology leaders. The US dollar index edged higher, as relatively stronger US growth was largely offset by rising interest rates abroad and government intervention to support several Asian currencies.
