Traders work on the floor at the New York Stock Exchange. Yield curves say a lot about stocks' futures. Reuters
Traders work on the floor at the New York Stock Exchange. Yield curves say a lot about stocks' futures. Reuters
Traders work on the floor at the New York Stock Exchange. Yield curves say a lot about stocks' futures. Reuters
Traders work on the floor at the New York Stock Exchange. Yield curves say a lot about stocks' futures. Reuters


Global yield curves: The overlooked catalyst driving stocks higher


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September 03, 2025

A crucial economic indicator flashes green, yet few take heed. Convinced it outlived its usefulness, they shun this bullish signal or dismiss it outright.

What is it? “Yield curves” – and understanding their sneaky global power gives you an advantage. Let me show you why this antiquated economic gauge has renewed energy – and what it says for stocks’ future.

For over a hundred years, the US yield curve did a bang-up job forecasting economic cycles. It graphs sovereign bond rates from three months to 10 years (or longer), left to right. When long-term rates top short-term rates, the “curve” slopes upwards to the right – historically an indication of economic expansion. The steeper the upwards slope, the better. When short rates topped long, the curve was “inverted” – usually, though imperfectly, foretelling a recession.

But why? Like an instrument on a car’s dashboard, the curve usually predicts bank lending trends. Banks’ core business is short-term borrowing (through overnight loans or deposits) to fund long-term loans, pocketing the difference. So, steeper curves mean bigger profits. Hence, when the curve is steep, banks lend eagerly, fuelling growth. Inverted curves? They sap profits banks earn on loans. So, they do not lend much. Growth staggers.

For decades, the curve rarely misfired. So most investors tracked it, especially America’s, given its global economic import. But like assuming a car’s dashboard is reality, they ignored its “under the hood” function: the lending. It worked until it didn’t.

After 2022’s stock market decline, global yield curves inverted, fuelling widespread fear of recession. The worst was yet to come, many thought. But a funny thing happened: lending grew. Recession didn’t happen – in America, Asia or Europe. Some areas had tiny gross domestic product contractions, like Germany, the Netherlands or Singapore. But they were exceptions. US and world GDP climbed. Stocks rose in shock. The curve remained inverted in 2023 and most of 2024, with stocks rising and GDP growing. Soon, most deemed the curve “broken”.

But why did it “break”? Under the hood, banks held oceans of Covid-era low-cost deposits. In 2020, lockdowns and “stimulus” payments left consumers flush with cash – much of which ended up in their savings accounts. US bank deposits ballooned 20.8 per cent year on year and another 11.7 per cent in 2021, remaining elevated throughout 2022 and 2023, echoing global trends. Eurozone deposits grew 10.8 per cent year on year.

That meant banks didn’t need to raise rates to compete for deposits. Short rates no longer reflected their costs. When yield curves inverted, banks continued lending. Economies kept growing.

Now? Largely unnoticed, yield curves have flipped positive, aiding loan profits. Partly, this stems from short-term rate cuts from the likes of the Fed and European Central Bank. With that huge Covid-era deposit base having melted away, rate cuts now actually help banks by truly lowering their funding costs. Moreover, long-term rates rose (which most investors wrongly feared), steepening the yield curve and offering more lending incentive.

Money flows freely globally, so I have long fashioned a GDP-weighted global yield curve. A year ago, global 10-year sovereign bond yields were 0.76 percentage points below three-month yields: inverted. Now, they are 0.58 percentage points above those yields: a stealthy 1.34 percentage point shift. It doesn’t singularly rule out recession or a bear market, but it is significantly bullish and explains recent trends.

America's curve steepened less, widening from a deeply inverted 1.30 percentage points below to 0.01 percentage points below, basically flat. But continental Europe’s shifted from 0.54 percentage points below to 1.22 percentage points above: a big, fat 1.76 percentage point shift. The UK’s went from 0.94 percentage points below to 0.74 percentage points above.

These swings matter, especially since so few notice. Japan and China, where the yield curve was not inverted a year ago, now see higher spreads. Japan’s rose from 0.76 percentage points above a year ago to 1.17 percentage points above now. China’s went from 0.68 percentage points above to 0.93 percentage points above.

Where it improved most, stocks do better. Globally, non-US stocks have outshined America’s in 2025, led by European stocks’ red-hot 26.7 per cent rise until August 25. UK stocks are up 26.3 per cent, US stocks just 10.2 per cent. Sure, tariffs hurt America the most. But the relatively steeper curve shifts in Europe and the UK adds another layer.

Steeper yield curves boost lower-growth, cheaper-value stocks. Those dominate Europe. Tech growth stocks dominate America. In the year to date, Europe’s banks rose 79.7 per cent and the UK’s 49.8 per cent, smashing US tech’s 13.5 per cent. Why? The global curve shift boosts bank profits.

Value-orientated industrials in Europe and the UK also lead, up 34.2 per cent and 36.4 per cent, respectively. More lending delivers capital to grow.

Global curve steepening alone will not dictate markets’ direction. But it is a tailwind with true power, especially because it is unseen. Expect it to drive global stocks higher, especially in Europe and the UK.

PROFILE OF SWVL

Started: April 2017

Founders: Mostafa Kandil, Ahmed Sabbah and Mahmoud Nouh

Based: Cairo, Egypt

Sector: transport

Size: 450 employees

Investment: approximately $80 million

Investors include: Dubai’s Beco Capital, US’s Endeavor Catalyst, China’s MSA, Egypt’s Sawari Ventures, Sweden’s Vostok New Ventures, Property Finder CEO Michael Lahyani

Name: Peter Dicce

Title: Assistant dean of students and director of athletics

Favourite sport: soccer

Favourite team: Bayern Munich

Favourite player: Franz Beckenbauer

Favourite activity in Abu Dhabi: scuba diving in the Northern Emirates 

 

Squid Game season two

Director: Hwang Dong-hyuk 

Stars:  Lee Jung-jae, Wi Ha-joon and Lee Byung-hun

Rating: 4.5/5

Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption. 

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks. 

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes. 

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion. 

8. Pillar 2 implementation 

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations. 

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity. 

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

MATCH INFO

Uefa Champions League semi-final, first leg
Bayern Munich v Real Madrid

When: April 25, 10.45pm kick-off (UAE)
Where: Allianz Arena, Munich
Live: BeIN Sports HD
Second leg: May 1, Santiago Bernabeu, Madrid

Expert input

If you had all the money in the world, what’s the one sneaker you would buy or create?

“There are a few shoes that have ‘grail’ status for me. But the one I have always wanted is the Nike x Patta x Parra Air Max 1 - Cherrywood. To get a pair in my size brand new is would cost me between Dh8,000 and Dh 10,000.” Jack Brett

“If I had all the money, I would approach Nike and ask them to do my own Air Force 1, that’s one of my dreams.” Yaseen Benchouche

“There’s nothing out there yet that I’d pay an insane amount for, but I’d love to create my own shoe with Tinker Hatfield and Jordan.” Joshua Cox

“I think I’d buy a defunct footwear brand; I’d like the challenge of reinterpreting a brand’s history and changing options.” Kris Balerite

 “I’d stir up a creative collaboration with designers Martin Margiela of the mixed patchwork sneakers, and Yohji Yamamoto.” Hussain Moloobhoy

“If I had all the money in the world, I’d live somewhere where I’d never have to wear shoes again.” Raj Malhotra

Sarfira

Director: Sudha Kongara Prasad

Starring: Akshay Kumar, Radhika Madan, Paresh Rawal 

Rating: 2/5

Movie: Saheb, Biwi aur Gangster 3

Producer: JAR Films

Director: Tigmanshu Dhulia

Cast: Sanjay Dutt, Jimmy Sheirgill, Mahie Gill, Chitrangda Singh, Kabir Bedi

Rating: 3 star

Jetour T1 specs

Engine: 2-litre turbocharged

Power: 254hp

Torque: 390Nm

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Director: Michael O’Shea

Starring: Eric Ruffin, Chloe Levine

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Transmission: nine-speed automatic

Power: 630bhp

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Price: Dh810,000

Updated: September 03, 2025, 4:06 AM