12 October 2026 | Latest available: Thoughts on the Market, 9 October

Morgan Stanley’s Andrew Sheets has focused on whether markets can continue absorbing higher yields without a more significant deterioration in risk appetite. Speaking after the firm’s European Credit Conference, attended by 50 companies and more than 1,000 investors, Sheets highlighted the central question facing credit markets: at what point do rising rates become a problem for otherwise resilient markets?

A related signal came from Morgan Stanley equity strategist Mike Wilson on 12 October. He noted that the US 10-year Treasury yield has risen approximately 120 basis points since February, tightening financial conditions even without further Federal Reserve action. The speed of the increase and bond-market volatility may matter as much as the absolute yield level.

For investment banking, the risk is that higher yields eventually translate into weaker financing conditions, more conservative acquisition valuations and reduced leverage capacity. Strong equity markets may continue supporting strategic transactions, but financing-sensitive deals face a more demanding environment.

Market implications

• Rates: The bond market is already tightening financial conditions.

• Equities: AI-linked leaders have helped sustain market strength despite higher yields.

• Credit: Watch bond volatility and financial-sector performance for signs of broader stress.

M&A / deal flow implications

• Higher debt costs can weaken leveraged-buyout economics and reduce bidding capacity.

• Buyers and sellers may disagree more over valuations if financing costs rise faster than earnings.

• Credit and refinancing conditions will be important indicators of whether deal activity broadens.

3 key takeaways

1. Markets have so far proved resilient to higher yields.

2. A roughly 120bp rise in the 10-year yield since February represents meaningful tightening.

3. The pace of yield increases could become a key determinant of deal financing and valuations.