Juggling Dynamite

Interest rates are a self-correcting mechanism, particularly in highly leveraged markets and economies.

Lance Roberts and Michael Lebowitz explain the dynamics well in If Bonds Get Crushed, Stocks Will Get Crushed Even More:

If Treasury yields continue significantly higher, stocks are likely to feel even more pain because we’re a debt-driven economy. The cost of money matters enormously for future economic growth.

A lot of companies borrowed aggressively in 2020–2021 when rates were incredibly low. Debt that was financed at 2%–3% is increasingly coming due, and companies may now have to refinance at 5%, 6% or 7%.

What happens when interest expense suddenly doubles or triples?

Companies have to find the money somewhere. That can mean layoffs, lower CapEx, reduced investment and cuts elsewhere in the business.

Higher yields therefore don’t stay confined to the bond market—they gradually work their way through the real economy. And there’s a second problem: asset allocation. Imagine the 10-year Treasury yielding 8%. How much capital would move out of stocks when investors could earn something close to 8% in Treasuries without taking equity risk? That rotation is already happening to some degree.

The higher yields go, the more attractive fixed income becomes relative to equities. But there’s an important paradox here: higher rates ultimately create the conditions for lower rates. If yields rise far enough, they destroy economic demand. Growth slows, companies cut spending, unemployment rises and inflationary pressure weakens. Eventually you get disinflation or potentially deflation.

It’s similar to the old saying that the cure for high oil prices is high oil prices. Eventually high prices destroy demand.

High rates can cure high rates for the same reason. That’s why simply extrapolating yields higher forever misses how dynamic markets and economies actually work.

If yields became extreme and the economy entered a deep recession, you could initially see enormous pressure across virtually every asset class as investors scramble for liquidity.

But eventually those high bond yields become incredibly attractive.

If inflation starts falling toward 1%–2% while the economy is in recession, investors aren’t going to ignore Treasuries yielding 5%, 6% or potentially more. Money would pour into bonds, pushing yields lower and bond prices higher.

9-24-26 If Bonds Get Crushed, Stocks Will Get Crushed Even More
w/ @michaellebowitz

If you think bonds are about to get crushed, understand what that would mean for everything else.

If Treasury yields continue significantly higher, stocks are likely to feel even more pain… pic.twitter.com/YtpUFxJECk

— Lance Roberts (@LanceRoberts) September 24, 2026

Higher input costs prompt higher interest rates until consumption falls out of necessity.  Central banks then ease, while risk markets race to the bottom and Treasury prices rally. The segment below offers some worthwhile facts and insights.

Danielle DiMartino Booth, CEO of QI Research, explains why she believes the Fed’s latest rate hike is a policy mistake, as rising energy costs, weakening consumers, credit stress, AI-driven economic risks, and housing pressures threaten the U.S. economy. Here is the direct video link.

Zillow is sounding the alarm on surging Treasury yields as the 30-year Treasury hits its highest level in nearly 20 years. Higher Treasury yields are keeping mortgage rates elevated as the U.S. housing market already faces weak buyer demand, rising inventory, falling list prices, and some of the lowest home sales in decades. But mortgage rates might not be the real problem. Home prices remain historically expensive compared to household incomes, with the national home value-to-income ratio around 4.3 versus a long-term average closer to 3.5. Until that affordability gap closes, home buyers could remain on the sidelines even if mortgage rates eventually decline. Here is a direct video link.

With a median Canadian home price-to-household-income ratio of 8.9x nationally (versus 4.3x in America), Canada’s housing bubble says, ” Hold my beer…

Canadian home sales fell to about 37,000 in August, down 7% year over year and 0.7% from July, marking the slowest August in at least 23 years and even weaker on a per-capita basis despite population growth. The slowdown is broadening beyond Ontario and B.C., with declines in Alberta (-11.5%), Quebec (-7.3%), New Brunswick (-8.7%), and softer volume even in Saskatchewan amid major investment news. Nationally, new listings rose 3.3% while sales fell, pushing the sales-to-new-listings ratio down to 49.1% and favouring buyers.  Here is a direct video link.