Stock market has reacted with complete serenity to rising interest rates
Summary
- Despite rising government bond yields and interest rate pressures, the stock markets in Europe and the US showed resilience, with most indexes rising last week, except for Helsinki.
- US government bond yields have reached levels not seen in decades, with the 10-year yield surpassing 5%, and foreign interest in these bonds has decreased, adding pressure to the yield curve.
- Fuel prices have emerged as a significant inflation risk, with US diesel prices averaging $6.47 per gallon, contributing to increased inflation expectations among consumers.
- The University of Michigan survey indicated a rise in 1-year inflation expectations to 4.6%, while long-term expectations remain above the Fed's target, suggesting continued interest rate pressures.
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Automatic translation: Originally published in Finnish 28/09/2026, 04:49 GMT. Give feedback here.
Last week was a rising week on the European and US stock markets, with the exception of Helsinki. Government bond yields continued to rise last week, and long-term rates in the US are now above 5%. At the same time, households' short-term inflation expectations accelerated clearly, and high fuel prices are maintaining price pressures.
| Indexes | Close | 1-week change | YTD | |
| OMX Helsinki | 13873,7 | -0,4 % | 11,7 % | |
| Eurostoxx 600 | 638,7 | 0,5 % | 7,8 % | |
| S&P500 | 7743,4 | 1,2 % | 13,1 % |
Developed economies' government bond yields rose last week to levels not seen in decades. In the US, yields ended the week above 5% across all key maturities from five years upwards, and the 2-year yield also rose to 4.85%. In addition, foreign investors' interest in US government bonds has waned, increasing pressure on the long end of the curve. Several Fed central bankers signaled that further rate hikes are likely in the coming months, which in part increased interest rate pressure. Despite this, the stock market has reacted to the situation with surprising calm, and the mood is as calm as the surface of the sea on a crisp autumn foliage day.
US: 10-year yield, %
Source: LSEG
Fuel has become a key inflation risk. The average price of diesel in the US on Sunday was $6.47 per gallon, which points to broader tightness in the refined energy products market. The situation has increased demands for an export ban, even though the US has increased its energy exports. The tightening geopolitical situation around Iran will keep energy price risks elevated in the coming months as well.
US: Consumers' 1-year inflation expectations
Source: LSEG
Rising fuel prices and inflation that has almost reached school age have also lifted inflation expectations. In the University of Michigan consumer survey, 1-year inflation expectations rose from 4.0% in August to 4.6%. Long-term (5–10 years) expectations remained at 3.4%, clearly above the Fed's 2% target. As long as energy prices remain high, interest rate pressures are unlikely to ease.
