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/ @michaellebowitzIf 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
