A new report from Moody’s Ratings states that global financial markets have shifted to a different economic era characterized by higher inflation, increased borrowing costs, and heightened geopolitical tension. According to Atsi Sheth, chief credit officer at Moody’s, the period of low interest rates and low inflation following the 2008 financial crisis has ended, replaced by a "new economic world order" shaped by demographic shifts and economic security policies.
The report notes that while major stock indices remain near record highs, internal market dynamics show significant volatility and repositioning. Specifically, software, automotive, and consumer goods sectors have seen declines as consumers face higher prices. Conversely, energy and semiconductor sectors have experienced growth, driven by regional conflicts and the demand for hardware to support artificial intelligence infrastructure.
Bond markets also reflect these shifts, with government yields rising across most advanced economies and investors moving away from riskier corporate debt. The 30-year U.S. Treasury yield recently traded above 5% for its longest duration since 2007. Moody’s attributed higher government borrowing costs in part to increased spending on defense and geopolitical concerns.
Analysts warned of potential risks remains in this new environment, noting that heavy investments in artificial intelligence may not provide the expected returns. The report also highlights a reliance on the assumption that governments will intervene during periods of market turbulence, a premise that Moody’s suggests is not guaranteed.