U.S. stocks and bond yields have been rising in tandem in recent weeks, with many investors attributing the move to the Iran war, inflation and an AI arms race. But some models now suggest higher borrowing costs are reaching the point where they start to drag on equities.

Calculations on so-called equity risk premia (ERP) - the excess returns promised by holding equities over those on "risk-free" government bonds - differ widely depending on inputs and methodologies.

Yet Societe Generale's proprietary version, which the bank updated last week, reckons nominal U.S. Treasury yields at 4.5% are a critical juncture for relative value between the two asset classes.

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In the 1990s, investors learned to place their faith in the “Greenspan put”. The theory was that then-Federal Reserve Chair Alan Greenspan would cut interest rates if markets sagged, propping up global asset prices. More recently, money managers and dealmakers have grown used to similar support from the Middle East. For at least the past two decades they have enjoyed a “Gulf put” – the confidence that oil riches from the United Arab Emirates, Saudi Arabia and other states would be the marginal buyer of assets as diverse as U.S. Treasury bills, takeover targets like Electronic Arts (EA.O), opens new tab, and sporting trophies like Newcastle United Football Club. The Iran war puts all this in flux.

The UAE, Saudi, Kuwait, Qatar, Bahrain and Oman had $4 trillion in public overseas assets in 2025, the International Institute of Finance estimates. That treasure chest, which is divided between official reserves and sovereign wealth funds, represents the accumulated oil-fueled surpluses in the six Gulf states’ current accounts, which reached 15.7% of their collective GDP in 2022. Even though this had fallen sharply to 4.6% of GDP by 2025, the average value of these surpluses since 2019 amounted to an incremental $150 billion a year of investment firepower, according to a Breakingviews analysis of IIF data.

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Financial markets are in danger of a sudden and significant correction, with investors downplaying threats from factors including the Iran war, the European Central Bank warned.

Despite some recent adjustments, asset prices still look “stretched by historical standards,” the ECB said Wednesday in its bi-annual Financial Stability Review, listing downside risks over geopolitical, fiscal and macro-financial developments that appear to be being “underestimated.”

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European firms in China are turning more upbeat about their business outlook, a new survey found, just as Brussels appears poised to take action against a swelling trade imbalance with Beijing.

About 35% of respondents reported being optimistic about their industry growing in China over the next two years, up from a record low of 29% in 2025. The annual poll, published on Wednesday by the European Union Chamber of Commerce in China, also showed that 47% of companies said the local business environment had become more politicized in the last year, the lowest share since at least 2023

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