Bond yields have been rising almost everywhere, though RSA yields have largely resisted these pressures lately. An extended period of lower bond yields in response to the global financial crisis of 2008-09 and the Covid lockdowns has ended. Not only have nominal yields moved higher, but more tellingly so have inflation-protected real yields risen, adding to the real cost of capital. In 2022 investors had to accept a negative 3% a year on a German 10-year inflation linker. In other words, investors had to hand over 3% a year to buy inflation protection from the German government. The same German bonds now offer close to 2% a year after inflation and are accordingly worth far less than they were. A 10-year US treasury inflation-protected stock now yields more than 2% per annum after inflation, providing real yields that turned positive only in 2022 as the financial repression practised by the US treasury and Federal Reserve came to an end. (Karen Moolman) Real yields have risen, revealing elevated demands for capital. More inflation expected has had a lesser influence on nominal interest rates ― higher nominal yields have been driven higher by mostly higher real rates.The gap between 10-year nominal and inflation-protected yields in the US ― the so-called breakeven rates that are presumed to reveal inflation expectations ― is now 2.4% a year for US and 2.3% for German bonds. In early 2020 the breakevens were 1.8% and 1%, respectively, indicating less inflation expected back then. Despite the competition for capital, the share markets have marched ever higher, but for a brief episode in 2022 when short and long rates surged as inflation proved more than temporary to the Fed. Long-bond yields in the US have stabilised at the higher levels first reached in 2023. Yet the share market moved still higher this year as long-term bond yields ticked higher. Since early 2020 the S&P has delivered an impressive average annual return of 14.5%, while a Bloomberg index of US government bonds has delivered a negative annual return of 0.78%. It has been a very good time to own equities rather than bonds. The returns from the average equity have been well supported by reported growth in earnings. The price-earnings ratio for the S&P 500 has increased by about 20% since 2020. Earnings have grown strongly, by 15% over the past 12 months, and are expected to grow as strongly over the next year. There are other features of the current US stock market that will have contributed to upward pressure on interest rates. The capex and research & development (R&D) spending by the IT scalers have been growing rapidly ― by an extra trillion dollars and more a year ― as they compete for space in the new brave world of AI. It has had observable macroeconomic consequences for the US economy. That is resulting in faster growth and more employment but is also introducing enough extra borrowing to meaningfully increase their calls on the capital market and thus to influence interest rates themselves. Substantial free cash has fallen away given the scale of extra spending on capex and R&D.Free cash flow that would until recently have added to gross savings has had to be augmented by debt raised to fund highly ambitious growth plans. These extra calls on the capital markets, when combined with ever-larger US treasury deficits, has presumably made for more stressed capital markets and higher borrowing costs. The case of RSA bonds is somewhat different. Nominal bond yields have been falling in response to strong signs of fiscal sustainability. The South African sovereign risk spread (the difference between dollar-denominated RSA and USA bond yields) has narrowed sharply in recent months. The yield spread on five-year RSA Yankee bonds has fallen below 1% per annum, putting RSA debt in investment-grade territory. Also narrowing has been the spread between RSA nominal bond yields and their US equivalents, indicating that less rand weakness is expected. But there remains an RSA bond market anomaly. RSA inflation-protected yields have not declined. They continue to offer high and inflation-certain returns of more than 4% a year, compared with real yields under 2% in 2012. The reason for such impressively high low-risk returns is not at all obvious.Clearly, foreign investors would not easily be attracted to such yields. They would receive rand returns at exchange rates that would be expected to weaken and reduce expected returns when expressed in dollars, whereas rand investors would confidently expect high real returns. Perhaps the appetite of local investors for inflation linkers has been more than satiated. Inflation linkers account for a significant 17% of all marketable national government debt ― perhaps too much to ask for, thus making for expensive debt. It’s not good for taxpayers, but surely helpful to lenders. • Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.