Bank of America: Higher Yields and AI Create a Two-Speed Market

28 September 2026 | Latest available: Capital Market Outlook, September 21

Bank of America’s latest Capital Market Outlook focuses on the interaction between higher Treasury yields, AI investment and geopolitical risk. Its macro strategy highlights pressure across the yen, the 10-year Treasury market and the Iran situation, while its market view examines the growing resource demands of AI.

The rate backdrop has deteriorated sharply. By Monday, the 30-year Treasury yield was around 5.52%, up roughly 27bp during September, while the 2-year yield had risen approximately 55bp as markets increasingly priced another Fed hike. Bank of America rates strategist Mark Cabana said there was further room for bonds to sell off before financial conditions become sufficiently restrictive.

At the same time, AI continues to support equity valuations and capital expenditure. The challenge for markets is that the same AI investment boom requiring enormous amounts of capital is occurring against a backdrop of increasingly expensive financing.

Market implications

  • 30-year Treasury: approximately 5.52%

  • 2-year Treasury yields up around 55bp this month

  • AI remains a major source of investment and growth

  • Higher yields increase pressure on equity valuations

M&A / deal flow implications

  • Higher debt costs could weigh on LBO activity

  • Strategic M&A remains relatively better positioned

  • AI infrastructure creates continued demand for financing

  • Liability-management and refinancing opportunities may increase

3 key takeaways

  1. Bond-market repricing is becoming a major constraint.

  2. AI investment remains powerful but increasingly capital-intensive.

  3. The financing gap between strong and weak balance sheets is widening.