Investment Market Update – September 2026

Rising Bond Yields Reshape Markets

One of the most significant developments during the month has been the sharp rise in government bond yields around the world.Long-term borrowing costs in the United States, Japan, the United Kingdom, Germany and Australia have reached levels not seen for more than a decade, and in some cases since before the Global Financial Crisis.

Several factors are driving this move. Governments are running large fiscal deficits and issuing increasing amounts of debt, requiring higher yields to attract investors.

Inflation concerns have re-emerged due to higher energy prices and ongoing geopolitical tensions, while the enormous borrowing requirements of major technology companies investing in artificial intelligence infrastructure are competing for investor capital.

Japan has become an important part of the story. Japanese government bond yields have risen above 3% for the first time in decades, encouraging Japanese investors to bring capital home rather than invest overseas.

This removes a key source of demand for global bond markets and has added upward pressure on yields worldwide.

For investors, higher yields have both positive and negative implications. On the positive side, fixed income investments now offer more attractive income opportunities.

However, higher borrowing costs can slow economic growth, place pressure on share valuations and increase mortgage costs for households.

Markets are increasingly adjusting to a ‘higher for longer’ interest rate environment.

Australian Reporting Season: Resilient But Uneven

August reporting season has now concluded, providing valuable insight into the health of corporate Australia.

Overall, results were better than headline market performance suggests.

Earnings generally met or exceeded expectations, with many companies maintaining dividends and balance sheets remaining relatively strong.

Healthcare was a standout sector, while resources benefited from higher commodity prices and improving cash generation.

However, there were several areas of caution.

Earnings growth remains concentrated in a relatively small number of sectors and companies.

Analysts have reduced future earnings forecasts, particularly for domestically exposed businesses, and management commentary increasingly highlighted slowing consumer activity and softer housing-related demand.

Banks, retailers and housing-linked businesses generally delivered more cautious outlooks, while costs remain elevated across wages, energy, transport and insurance.

Investors appear increasingly focused not just on current earnings, but also on companies’ ability to sustain growth in a slower economic environment.

The key takeaway is that corporate Australia remains resilient, but the earnings recovery is narrowing and becoming more dependent on company-specific execution rather than broad economic growth.

Housing Sector Faces Growing Headwinds

Australia’s housing market continues to face mounting challenges.

Higher interest rates are already reducing borrowing capacity, slowing housing turnover and putting downward pressure on prices.

National housing turnover is estimated to be around 20% below normal levels, while dwelling prices have begun to decline more broadly across the country.

Recent government tax changes have also contributed to weaker activity, particularly among investors and housing-related sectors. Mortgage applications have fallen materially following the Federal Budget, while residential sales activity and buyer conversion rates have weakened.

Adding further pressure, inflation remains stubbornly high, raising the possibility of additional RBA tightening.

Several economists and major institutions now regard further rate increases as a realistic possibility if inflation does not moderate.

While housing weakness will likely take time to flow through to the wider economy, it represents one of the key risks facing Australian growth over the next 12 months.

Mergers, Acquisitions and Valuation Opportunities

Another notable theme in recent months has been rising merger and acquisition (M&A) activity across the Australian market.

A growing number of companies have attracted takeover approaches from both strategic buyers and private equity firms, particularly in sectors such as healthcare, infrastructure, technology and industrials.

Investors increasingly view Australia as offering high-quality businesses at reasonable valuations compared with many international markets, particularly the United States.

Market commentators have noted that a broadening M & A cycle is emerging, with transaction activity providing additional support for equity valuations at a time when earnings growth is moderating.

Importantly, Australia’s share market is also increasingly being viewed as a relatively defensive destination for global capital.

Many listed companies generate stable cash flows, maintain strong balance sheets and pay attractive dividends – characteristics that tend to be valued during periods of rising interest rates and heightened economic uncertainty.

While higher borrowing costs and slowing growth present challenges, the combination of attractive valuations, robust corporate balance sheets and increasing takeover interest provides a supportive backdrop for long-term investors.