Your September 2026 market update: stock markets stutter as bond yields rise and AI could slow down

This is part of our monthly series. Catch up on last month’s summary here: Your August 2026 market update: stock market growth amid a global government bond sell-off

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If you wanted a case study of the stock market and the weather moving in lockstep, September would be it.

Falling temperatures matched a cooling stock market, which softened last month. Many of the world’s biggest markets recorded little to no growth.

One reason markets struggled in September is bond yields pushing up the cost of government borrowing.

Then, there was the call from Artificial Intelligence (AI) bosses for a self-imposed slowdown of development in the market.

Combined, these factors led to lukewarm performance and a fairly flat month.

Find out what happened to markets in September.

The headlines: rising bond yields dampen stock market enthusiasm

As we noted last month, it was always a concern that stock investors would react to bond market turbulence. That’s likely what September’s flat stock performance indicates.

UK and European markets struggled, closing September lower than when it started. 

Prime Minister Andy Burnham’s speech at the Labour Party conference in Liverpool did little to influence the market. Investors were fairly indifferent to his announcements. That's despite him saying there'll be reforms to the State Pension triple lock from next parliament.

Asian markets, particularly in China and Hong Kong, also struggled. Performance was held back by interest rate decisions around the world (more on this later), uncertainty around the Iran war, and a tech stock dip. 

Japan was the exception, rebounding after an announced interest rate hike and a rally in chip stocks.

Dips in these regions were largely due to warnings about the pace of AI development and a need to slow it down.

Dario Amodei, head of Anthropic which makes the chatbot Claude, called for a pacing in innovation to ensure safety in the AI buildout. 

Rival AI bosses including Sam Altman (CEO of ChatGPT creator OpenAI) and Elon Musk (head of SpaceX, which runs xAI) backed Amodei’s comments.

US performance was similar to Japan’s, again due to a tech sector dip. 

But the market rebounded, helped by President Donald Trump’s rejection of Amodei’s proposals. Instead, his position is for self-regulation to make sure that US dominance in the industry continues. That helped tech stocks recover, leading the S&P 500 to finish the month just about up.

Bonds shape the story in September

As mentioned, stock movements were almost certainly shaped by what happened in the bond markets last month.

In August, we talked about a global rise in government bond yields - that’s the measure of a bond’s return, worked out by dividing the interest it pays (the ‘coupon’) by its price. 

Government debt had become less attractive, with concerns around governments’ ability to pay it off. That can lead to a bond sell-off, with prices falling and yields rising.

In turn, that forces governments to issue debt with higher coupons to attract investors. That further increases their borrowing costs.

That trend continued into September. Last month, we saw benchmark bond yields reach:

Rising government debt yields are important. Governments borrow money to fund the spending gap that’s left after taxes. So, when that becomes more expensive, it can squeeze spending and force governments to shift priorities.

The sell-off is particularly important in the UK ahead of new Chancellor John Healey’s first Budget on 28 October. 

Estimates suggest that it would almost halve Healey’s fiscal headroom - that’s how much space he has to spend money without breaking the government’s self-imposed rules - from £26 billion to £13.8 billion.

Interest rate rises around the world could push borrowing costs higher

As bond yields kept climbing last month, so did interest rates.

Central banks in some key economies increased rates. That included the:

The Bank of England (BoE) was the outlier here, holding its base rate at 3.75% for the sixth time in a row. However, three committee members voted for a rise to 4%, and Governor Andrew Bailey indicated there could be rises to come next time.

This all stems from the fact that inflation - that’s the measure of how quickly prices are rising - is still running hot in many countries. 

In the UK, inflation rose to 3.1% in the 12 months to August. For the US, that was 3.4% - slower than expected but still well above the 2% target. Meanwhile, it was 3.2% in the Euro area.

Much of this comes from high energy costs pushing up prices due to the Iran war. 

Crude oil exports through the Strait of Hormuz - a key waterway through which 20% of the world’s oil and gas exports travel - returned to pre-war levels at the end of the month.

However, oil prices are still high, as the waterway was still restricted for much of the month. That led oil to climb to $105 a barrel.

Energy is vital for production in nearly every industry, meaning a price increase filters through to the rest of the economy. That could lead inflation to stay higher for longer, creating the circumstances for more interest rate rises.

Those higher interest rates also push up the cost of borrowing throughout the economy.

In the UK, the average rate on a two-year fixed mortgage increased to above 5.9%, the highest since July 2024. 

Similarly, in the US, mortgage rates averaged 7.03%, the highest since early 2025.

Stock investors respond to bond market upheaval

All this brings us back to what happened in the stock markets.

Rising bond yields and interest rates can influence investors and affect stocks. Higher interest rates make debt more expensive across the board, including for businesses. Investors may be concerned around company performance when debt’s more expensive. 

AI companies are particularly exposed here. Many of them have borrowed heavily to build out the infrastructure - estimates suggest that there’ll be $4.1 trillion issued in AI-related debt by 2030.

That could make investors nervous about putting more of their money into these businesses.

Then there’s the lower need for stock market risk when government bonds are so lucrative.

Government bonds are historically a lower-risk investment, as they rarely default on their debts.

Company shares might have the potential for higher returns than those bonds. But they also present more risk.

So, when bond yields increase, investors may move over to achieve a healthy return with a lower risk of their investment losing value.

As a result, performance could reflect investors shifting from stocks over to bonds as their rate of return improves.

What’s next?

Take a look at some of the stories we might see in October’s update.

Keep an eye on PensionBee’s blog, The Buzz, to see our latest update.

Risk warning

As always with investments, your capital is at risk. Past performance is not an indicator of future performance. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.