JPMorgan analysts warn that rising long-term bond yields pose a significant risk to small- and mid-cap stocks. The bank reports that only 9% of US small and mid-sized companies currently offer dividends exceeding the yield of a 30-year Treasury bond, down from 19% two years ago.
The surge in yields is attributed to deteriorating government finances, with approximately 60% of the global economy now originating from countries where debt exceeds 100% of GDP. On Wednesday, the 30-year Treasury yield reached 5.70%, marking a 24-year high.
Despite the broader market risks, JPMorgan has added two companies to its model portfolio with an Overweight rating. These include the Chinese pharmacy chain Dashenlin Pharmaceutical, valued at $3 billion, and the German steel waste recycling firm Befesa, valued at €1.4 billion.
Market reaction to the yield environment has been uneven, with the Russell 2000 index falling 1.31% on Wednesday, while the S&P 500 declined by 0.22%. Federal Reserve officials have indicated support for another rate hike in 2026, with the next policy decision scheduled for late October.
