Weekly - Regional View Italian

4 September 2026, 10:49 UTC Chief Investment Office GWM Investment Research

76 months and counting Weekly - Regional View Italian Matteo Ramenghi, Chief Investment Officer, UBS WM Italy, UBS Europe SE, Succursale Italia

Markets love psychological thresholds, and over the summer we crossed two of them. The first concerns the length of the current US economic expansion, which has now reached 76 months—well above the historical average of roughly 42 months and the postwar average of 64 months. It is not a record, but it is now the sixth-longest expansion since the mid-19th century.

The second is the return of Treasury yields to levels near 5.0%, along with the fear that the economy and stock market will suffer as a result. To be precise, the 10-year Treasury yield is hovering around 4.8%, while the 30-year yield has returned to 5.0%, a level not seen since 2007.

These are attention-grabbing numbers, but neither amounts to a verdict. The real question is not how long an economic expansion can last, or whether 5% is a fatal threshold. It is why yields are rising, and whether the economy and markets can absorb them. As economist Rudi Dornbusch put it, “Economic expansions do not die of old age.”

Since the 1960s, there have been only four episodes in which the US economy was already more than 70 months into an expansion and the 10-year Treasury yield was above 4.5%.

Three of those episodes are reassuring. In 1966, the yield was close to 5%, and the expansion continued for another three years. In 1988, the 10-year yield was around 9%, and the recession did not arrive until 1990. In 1997, the yield was above 6%, yet the expansion continued for approximately three years.

The sinister precedent occurred in 2007, ahead of the Global Financial Crisis. But it is important to remember that the recession stemmed from severe problems in the real estate and credit markets, as well as the undercapitalization of some banks. In short, history suggests that recessions are not caused by the level of yields, but by the forces driving them.

The war in Iran has pushed oil prices higher, adding to inflationary pressures. At the same time, the economy is performing better than expected, as strong corporate earnings confirm. Together, these factors could give central banks greater scope to raise interest rates.

Following Federal Reserve Chair Kevin Warsh’s speech at Jackson Hole, in which he reiterated that inflation remained too high without signaling a specific policy course, markets sharply increased the probability of a September rate hike.

This report has been prepared by UBS Europe SE, Succursale Italia. Please see important disclaimers and disclosures at the end of the document.

Weekly - Regional View Italian

In Europe, the energy question also remains unresolved. If the recent rise in oil prices proves persistent, the ECB could lean toward a more restrictive stance. The odds of another rate hike in Japan have increased as well.

In June, Japan held USD 1.1tr in Treasuries—more than any other country, but meaningfully less than in February. That is a significant shift for a market already facing a growing supply of debt.

Advanced economies are also expected to run wider fiscal deficits this year, averaging 4.6% of GDP. In addition to the United States—with a deficit above 6% of GDP, or more than USD 1.8tr—Germany and Japan are also expected to post sizable increases in their shortfalls. Demographic pressures, higher defense spending, and the energy transition are all adding to the strain.

For more than a decade, central banks absorbed a significant share of government debt through quantitative easing. Today, however, they are no longer buying bonds at anything like their previous pace; in some cases, including the European Central Bank, they are reducing the size of their balance sheets.

Companies are competing for private savings as well. Technology conglomerates, in particular, are expected to invest nearly USD 700bn dollars in artificial intelligence this year. That surge in spending is squeezing cash flows and prompting companies to rely more heavily on debt to finance their expansion.

All this bond supply must therefore be absorbed by private investors…