Market insights,
September 2026
Investing
5 min read
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Bond markets provided the defining story of September, with government bond yields rising sharply as investors grappled with persistent inflation, higher-for-longer interest rate expectations, and mounting government debt burdens.
Against that blustery backdrop, the leaders of the world’s two largest economies came together for much-hyped talks, with President Xi of China making his first formal visit to Washington since 2015.
At a corporate level, there was renewed debate about the potency of autonomous AI models, and the need for agreeable guardrails. Several industry heavyweights called for a concerted effort to slow down the current rate of ‘progress’ in this space. It wasn’t enough to derail investor appetite for the so-called AI trade.
Up again: Rates and oil prices
The ongoing inability of the US and Iran to agree a ceasefire after 7 months of war nudged oil prices even higher. It compounded inflationary pressures and nudged interest rate trajectories upward.
In one of the key developments of the month, the US Federal Reserve (Fed) raised interest rates for the first time in 3 years. Following a unanimous 12-0 vote, a 25-basis point hike took the federal funds rate to 3.75% to 4%[1].
While there have been unanimous votes to hold or cut rates in the past three years, you have to go back to July 2023 for the Fed’s last unanimous rate hike decision.
For President Trump, the rising cost of borrowing in America gives him a headache. The US mid-term elections – seen as a barometer of his performance in office so far – are fast approaching. While it’s true that the US economy continues to hold up relatively well – which is part of the reason why markets don’t expect the Fed to lower rates any time soon – the pinch is being felt by everyday Americans, especially homeowners and car owners. That may come back to bite him when they go to the polls shortly.
Closer to home, there was also a rate hike in Australia. In one of the final acts of the month, the RBA opted to raise the cash rate target to 4.60%[2]. The RBA’s statement echoed recent analysis from other key central banks around the world: “There have been further disruptions to global oil supply and recent data suggest that growth and inflation in Australia have been higher than expected.[3]”
Bonds, equities, and gold
The yield on US 10-year Treasuries hit levels not seen since 2007. The same was true of 10-year UK government bonds (known as gilts), while a similar picture was painted in France and Italy[4]. Collectively, it reinforced the view that central banks in key economies have little room for rate cuts in the months ahead.
Broadly speaking, most major equity indices ended September flat or slightly down, in response to higher bond yields. In simple terms, this is because higher bond yields make bonds a more attractive investment option. They also make borrowing more expensive and reduce the value investors place on future company earnings, which can make shares less attractive (all of which can see investors redeploying capital from equities).
That said, equity markets remain well-supported by resilient corporate earnings and robust economic growth, particularly in the US.
Meanwhile, the rise in real yields and the stronger US dollar dented gold’s appeal. Given that gold doesn’t produce an income, and that government bonds are available yielding around 5% or more, the opportunity cost of holding the precious metal increased.
Although some investors continue to regard gold as a hedge against both inflation and geopolitical risk, higher real yields make income-producing defensive assets comparatively more attractive.
AI: A reckoning?
Lastly, a brief word on artificial intelligence. AI has been one of the biggest forces shaping equity markets this year, as investors have continued to back the companies building the models, computer chips, and infrastructure behind the tech.
In September, however, the conversation broadened from AI’s commercial potential to the risks associated with increasingly capable and autonomous systems.
At a special meeting of the United Nations Security Council, senior industry figures warned that the technology was advancing more quickly than the safeguards designed to control it. Various industry leaders weighed in with their own cautionary tales about the need to control AI before it spirals out of control[5].
September therefore marked something of a reckoning for AI: enthusiasm about its commercial potential remained, but investors were also reminded that the technology brings significant regulatory, security, and reputational risks.
For markets, this does not necessarily undermine the long-term investment case for AI. It may, however, encourage greater scrutiny of valuations, capital spending and risk management across the sector.
Meanwhile, the US and China continue to battle for dominance in the space. During President Xi’s Washington visit, the countries’ leaders committed to new AI-focussed dialogue between the two superpowers when they meet again in November[6].
The investor perspective
For investors, September was primarily a story of repricing.
Across the month, the combination of rising oil prices, inflation concerns, geopolitical friction, and resilient economic growth created a blustery, uneven environment for both bond and equity markets.
For a typical diversified discretionary portfolio, market conditions weren’t therefore particularly helpful. Falling bond prices may have detracted from fixed interest returns, while flat or weaker global equity markets provided limited offset. Depending on currency hedging, a stronger US dollar may have provided some protection for New Zealand investors holding unhedged overseas assets.
On the flip side, higher bond yields also improved the prospective income available from newly issued bonds (even though the adjustment to those higher yields created short-term capital losses for existing holdings).
From that perspective, September goes down in history as an unforgiving month. However, 2026 has still largely rewarded those investors with appropriate levels of diversification, patience, and discipline.
References
[1] https://www.ft.com/content/61b5fbae-9dd6-4980-bd1f-effe54b72d84
[2] https://www.rba.gov.au/
[3] https://www.rba.gov.au/media-releases/2026/mr-26-27.html
[4] https://www.ft.com/content/39de7709-7b5b-42f6-ad90-df50f1308ea2?syn-25a6b1a6=1
[5] https://www.reuters.com/business/ai-leaders-brief-un-amid-warnings-technology-could-slip-beyond-human-control-2026-09-23/
[6] https://www.bbc.com/news/articles/cwly5lmvy38qo
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