The U.S. 10-year Treasury yield touched 5.31% on October 5, 2026. Two days later, a 10-year auction cleared at 5.30%, the highest since November 2000. Add a U.S. Federal Reserve (the Fed) rate hike in September, the first since 2023, and it is not hard to see why rising interest rates have become one of the most common questions we hear from clients.
The headlines treat rising rates as a single story. They are not. Why rates are rising matters far more than the fact that they are rising, and the answer to that question changes what it means for your portfolio.
What has the U.S. Federal Reserve done with interest rates in September and October 2026?
On September 16, 2026, the Federal Open Market Committee voted 12-0 to raise its benchmark rate by 0.25%, to a target range of 3.75% to 4.00%. Chair of the U.S. Federal Reserve Kevin Warsh said plainly that inflation is too high and has been for too long, with energy prices tied to the conflict with Iran pushing costs higher.
There was a second message in the decision. President Donald Trump has been publicly calling for rates of 1% or lower. A unanimous hike under a Trump-appointed chair was widely read by CNBC and CNN, among others, as the Fed signalling that it will set policy independently.
What does a 0.25% hike do? On its own, very little, and not quickly. Monetary policy works with what economists have long-called long and variable lags. The effect of a rate change on the real economy is measured in quarters, not weeks. A single small increase is a signal, not a shock. A rapid series of hikes would be a different conversation, and that is something we are watching.
On October 28, the Fed paused. The committee held its target range at 3.75% to 4.00% in a 10-2 vote, with two members preferring another hike. In other words, the debate inside the Fed is not whether to cut. It is whether one increase was enough. The statement repeated that inflation remains elevated and that the committee “will deliver price stability.” That is a Fed in no hurry, not one hitting the brakes hard.
Are interest rates only rising in the United States?
No. Government bond yields are rising across Japan, the UK, France, and the U.S. at the same time.
This is one of the most important pieces of context missing from U.S.-focused coverage.
Government bond yields are rising across the developed world. Japan’s 10-year yield reached roughly 3.06% in late September, its highest level since 1996. The UK 30-year gilt rose above 6% for the first time since 1998, according to J.P. Morgan. France’s 10-year yield hit its highest level since 2002.
When yields rise in Tokyo, London, Paris, and Washington at the same time, the cause is not a single country’s politics. It is a global repricing of what money costs.
How is AI spending affecting bond yields?
There is also a structural reason that has nothing to do with inflation or central banks: demand for capital.
The largest technology companies are spending at a historic pace to build artificial intelligence (AI) infrastructure, and they are increasingly borrowing to do it. Microsoft, Alphabet, Amazon, Meta, and Oracle issued roughly $220 billion in bonds through mid-August 2026, according to BNP Paribas data reported by Reuters. FactSet reports that new borrowing went from covering 9% of these companies’ capital spending in fiscal 2024 to 32% in the twelve months to mid-2026.
The law of supply and demand applies. When a large new group of (arguably less rate sensitive) borrowers enters the market, competing with governments for the same pool of savings, the price of borrowing rises. Some of what we are seeing in yields is simply the cost of financing a technology buildout.
When are rising interest rates bad for the stock market?
To answer this, it helps to look inside a bond yield. A yield reflects several things at once: what investors expect from economic growth, what they expect from inflation, and how confident they are that they will be repaid. Each tells a different story.
Rates rising on growth expectations are generally benign for stocks. Lenders are demanding more because they expect a stronger economy, higher demand for credit and better returns elsewhere. Those same conditions tend to support corporate earnings. The exception is when yields climb high enough to compete seriously with stocks for investor dollars, which is why the level matters as well as the direction.
The Fed’s own October statement points to this version. The committee described economic activity as “expanding at a strong pace,” with productivity growth that “is strong” and capital investment that “is robust.” That is the Fed telling you the economy is doing the heavy lifting.
Rates rising on inflation fears or credit concerns are the dangerous version. That is when bond markets lose confidence that money will hold its value, or that a borrower can pay. Those are the scenarios that historically do real damage to both bonds and stocks.
Is inflation the reason bond yields are up?
Less than it was. Inflation spiked in the second quarter but slowed sharply in the third.
Inflation has picked up recently. The PCE price index rose at a 5.0% annualized pace in the second quarter, driven largely by energy prices tied to the Middle East conflict. That pressure is already easing. In the third quarter, PCE inflation slowed to 2.1%, and core PCE, which excludes food and energy, slowed to 2.5% from 3.3%, according to the Bureau of Economic Analysis.
But the bond market is telling us something important about the long term. The 10-year breakeven inflation rate, which measures what investors expect inflation to average over the next decade, stood at 2.34% on October 26, according to the Federal Reserve Bank of St. Louis. Over the past year, it has stayed in a narrow band between roughly 2.2% and 2.5%.
The market sees current inflation as a shock, not a new regime. If investors believed inflation was becoming entrenched, the breakeven rates would be climbing.
Is there any sign of trouble selling U.S. government debt?
Not even close. Demand at U.S. Treasury auctions remains strong
This is the credit side of the equation, and the evidence is clear. The bid-to-cover ratio measures how much demand there is for each dollar of Treasuries offered at auction. At the October 7 10-year auction, it was 2.77, meaning there was $2.77 of demand for every dollar of debt sold. That is above the twelve-month average. Indirect bidders, a group that includes foreign central banks and institutional investors, took about 80% of the offering.
Nobody is worried about the U.S. government paying its bills. Buyers are showing up in size. Elevated borrowing demand means that bond buyers have options and the U.S. government has to offer higher rates to win over buyers.
What does this mean for Canadian investors?
Put the pieces together. Rates are rising globally, not just in the U.S. A wave of AI-related borrowing is adding to demand for capital. Short-term inflation is elevated, but long-term expectations remain anchored. Demand for U.S. government debt is strong. The U.S. economy is holding up and potentially accelerating: second-quarter real GDP growth was revised up to 2.2% from 1.5% in the final estimate released September 30. The initial estimate of third quarter real GDP came in at 3.4% on October 29, according to the Bureau of Economic Analysis.
That is not the profile of a bond market in crisis. It is the profile of a market adjusting to a higher cost of money in a growing economy, while working through an energy-driven inflation spike.
None of this means rates cannot cause problems. If the Fed begins hiking quickly, if inflation expectations start to break higher, or if auction demand weakens, the picture changes. Those are the specific signals we monitor as part of our process, and we will adjust as the evidence warrants.
What it does mean is that a headline about rising yields, on its own, is not a reason to change a well-constructed plan.
If you have questions about how rising rates affect your portfolio, your fixed income holdings, or your broader Wealth Road Map, reach out any time. Understanding why something is happening is always the first step to deciding what, if anything, to do about it.
Sources: Federal Reserve, FOMC Statement (federalreserve.gov, Oct 28, 2026) | Federal Reserve / CNBC, “Fed rate decision September 2026” (cnbc.com, Sept 16, 2026) | CNN, “Kevin Warsh just defied Donald Trump. Now what?” (cnn.com, Sept 17, 2026) | Federal Reserve Bank of St. Louis, 10-Year Breakeven Inflation Rate T10YIE (fred.stlouisfed.org) | US Treasury, 10-Year Note Auction Results Oct 7, 2026 (treasurydirect.gov) | CNBC, “Historic day for global bonds as 10-year Treasury and JGB yields hit highest in decades” (cnbc.com, Sept 24, 2026) | J.P. Morgan, “Global bond yields at multi-decade highs” (jpmorgan.com) | FactSet, “Hyperscalers Tap External Financing as AI Capex Outruns Cash Flow” (insight.factset.com) | Reuters / BNP Paribas via MLQ, hyperscaler bond issuance (mlq.ai) | Advisor Perspectives, “Q2 GDP Third Estimate: Real GDP Revised Upward to 2.2%” (advisorperspectives.com, Sept 30, 2026) | Trading Economics, US 10-Year Treasury yield (tradingeconomics.com)
Conrad Kluge CFA, CFP®, Senior Wealth Advisor, Senior Portfolio Manager, leads the Kluge Wealth Advisory Group and is a financial advisor at Wellington-Altus Private Wealth, working with high-net-worth families in Calgary, Alberta. This post is for informational purposes only and does not constitute investment advice. Please consult with a qualified financial professional regarding your specific situation.