Since late July, a broad-based increase in government bond yields across developed markets has caught the attention of investors worldwide. According to a recent research report from CITIC SEC, this upward pressure on yields can be attributed to three primary drivers: rising inflation expectations, heightened concerns over sovereign creditworthiness, and a significant repricing of monetary policy paths by major developed-market central banks. In the near term, higher interest rates are likely to weigh on high-valuation, long-duration equities and intensify worries on Wall Street regarding the return on capital expenditures by hyperscalers. Conversely, a widening spread between Chinese and US interest rates could help ease the appreciation pressure on the renminbi and boost the willingness of southbound capital to allocate toward high-dividend stocks in Hong Kong. The brokerage recommends that investors continue to focus on dividend-yielding sectors such as banks, utilities, telecommunications, and property management.

Rising Inflation Expectations Drive Yields

Data from FRED indicate that since the end of July, the US 5-year and 10-year breakeven inflation rates have climbed by 21 basis points and 15 basis points, respectively, reaching 2.37% and 2.35%. Beyond the recent rebound in oil prices triggered by recurring conflicts in the Middle East, four additional factors could push overall US inflation higher starting this autumn. These include the pass-through of price increases by Apple products, the refilling of the US Strategic Petroleum Reserve, imported inflation stemming from Section 301 tariffs, and the transmission of rising residential property price growth into rental inflation.

Growing Sovereign Credit Concerns

While Treasury Secretary Bessent's bond repurchase plan may temporarily alleviate upward pressure on long-end US Treasury yields, the actual funds available in the Treasury General Account are limited given that the debt ceiling is expected to be hit early next year. Moreover, such "Treasury Twist" operations are widely questioned for potentially undermining the credibility of the US dollar. Outside the US, the Japanese government's intention to push for a reduction in the consumption tax on food and beverages, as well as fiscal expansionary expectations driven by populist forces in the UK and France, are all prompting global investors to demand a higher sovereign risk premium on developed-market government bonds.

Repricing of Central Bank Policy Paths

As of September 1, 2026, CME data shows that the probability of a Federal Reserve rate hike on September 16 has risen to 67%. Meanwhile, as of August 31, OIS trading implies an 85% probability of a European Central Bank rate hike on September 10 and a 93% probability of a Bank of Japan rate hike on September 18. If these expectations materialize, it would mark the first time in history that the US, Japanese, and European central banks all raise interest rates within the same month—or even the same quarter. Additionally, with the ECB, BOJ, and Bank of England still shrinking their balance sheets and the Fed having paused its Reserve Management Purchases, investor expectations for global liquidity are rapidly shifting.

Higher Risk-Free Rates Pressure Long-Duration Assets; HK Dividend Plays Relatively Favored

In summary, until the decisions from the US, European, and Japanese central banks are announced this month, risk-free rates in developed markets face further upside risks, which will weigh on high-valuation and long-duration equity assets. For US stocks, although credit spreads on junk bonds have narrowed slightly in the short term, the currently elevated cost of debt financing may further heighten concerns about the return on invested capital for hyperscalers' capital expenditures. Over the medium to long term, if a lame-duck government emerges after the US midterm elections and Washington pursues fiscal consolidation similar to that of Clinton's first term, a combination of fiscal contraction, low inflation, and stable growth could push long-end yields lower, potentially reviving a "valuation plus earnings" double rally for US equities.

For Hong Kong stocks, a widening China-US interest rate differential in the short term could ease the renminbi's persistent appreciation trend and boost southbound capital's appetite for high-dividend assets. The report suggests focusing on dividend-oriented sectors with high fundamental certainty and deep southbound participation, including banks, utilities, telecommunications, and property management.

Key Risks

The report also highlights several risk factors, including an unexpectedly large expansion of US Treasury buybacks, an overly aggressive tightening of monetary policy by global central banks, and a further escalation of geopolitical conflicts around the world.