A significant turning point in financial markets has been reached: the bond market is more interesting than most professionals have ever experienced in their careers. The rise in interest rates in the third quarter of 2026, at historic levels, has significantly changed the risk-reward profile of the bond market. Balanced portfolios between government bonds and high-rated corporate bonds offer current yields (running yield) below 5%, ensuring protection against inflation and particularly attractive real yields for defensive investors.

Current nominal and real yields are touching record highs from 20-25 years ago. At the end of the third quarter, 10-year US TIPS were close to 3% and longer-dated maturities approached 3.5%. An additional 50-100 basis points increase would bring rates back to levels of the '90s.

In our team of bond traders, we define these levels as 'maximum landing zones'. This is particularly true for the United States and Germany, excluding the immediate post-unification boom period. In the '90s, interest rates reflected a solid expansion (+4.2% annual in the USA, +2.5% in Europe, +9.2% in China), while today's economies grow by about 1.5 percentage points less.

Despite the debut of ChatGPT four years ago and the positive contribution of AI, the economy today does not benefit from the twenty favorable structural factors of the late century: demographic acceleration, globalization, increased purchasing power with the opening of Eastern Europe and integration of China into the global economy, factors that amplified the impact of technological and Internet innovations. Even if innovation guided by AI could provide a significant boost to growth driven by productivity compared to current levels, the trajectory of growth resulting from this would probably be limited to matching those of the late century, when the contribution of information and Internet was estimated at between 0.5% and 1% annually, a value lower than the current growth rate. Interest rates real and nominal of that decade remain therefore the benchmark of reference, setting the stage for economic and public finance pressures. [P2] The return of interest rates has led to a wider and more diversified bond market, offering new investment opportunities.

Investment banks have been involved in the bond market, creating a new type of securities based on the performance of companies, such as 'equity-bonds' or 'equity-linked notes'. These assets offer current yields based on the efficiency of companies, while maintaining protection against fiscal erosion and financial erosion. In addition, banks have had to adopt a different approach to manage their bond load, transforming themselves into 'capital investors' rather than simple capital intermediaries.

This new position allowed them to focus on high-quality options with better yield prospects but with less failure risk compared to traditional bonds. [P3] However, it is not all dark for those seeking to invest in bonds. Market volatility remains high, but this does not mean that all bonds must be sold immediately.