Despite lots of worries – around the resurgence of coronavirus driven by the Delta variant, peak growth, peak monetary and fiscal stimulus and high inflation – global and Australian shares are around record levels. So how can this be? Particularly with bond yields down sharply from their highs earlier this year. And how sustainable is it? And what are the risks?

On the face of it, shares and bonds seem to be telling us a different story. Since their highs earlier this year, ten-year bond yields have fallen 0.5% in the US to 1.26%, 0.4% in Germany to -0.47% and 0.7% in Australia to 1.16%. The decline in bond yields appears to reflect several factors:

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