JPMorgan Picks Two Stocks as US Bond Yields Surge

JPMorgan has cautioned investors holding shares of smaller companies. Rising government debt is pushing long-term bond yields upward, and small-cap stocks may feel the impact.

The bank quantified the risk. Currently, just 9% of US small and mid-cap stocks offer dividends that exceed a 30-year Treasury bond. That figure was 19% two years ago.

Despite the warning, the same research note identified two stocks JPMorgan favors.

How Government Debt Is Lifting Bond Yields

A dividend represents cash distributed to shareholders by a company. A 30-year Treasury is a loan to the US government delivering a fixed return over three decades.

When the safer bond provides a higher yield, the riskier stock becomes less appealing. JPMorgan strategists led by Eduardo Lecubarri said that ratio has dropped to a 24-year low.

JPMORGAN WARNS SURGING BOND YIELDS THREATEN SMALL-CAP STOCKS

JPMorgan warns rising 30-year yields pose a growing risk to small- and mid-cap equities, driven by deteriorating government finances.

Around 60% of global GDP now comes from countries with debt exceeding 100% of GDP…

— *Walter Bloomberg (@DeItaone) October 8, 2026

The strategists point to debt as the cause. Roughly 60% of global economic output now comes from nations that owe more than their annual GDP and continue running budget shortfalls. They described this as unprecedented.

Investors “seem to be ignoring” the risk, the strategists wrote, cautioning about “nasty surprises.”

On Wednesday, the 30-year yield reached 5.70%, its highest level in 24 years. It currently sits just below that mark.

The Russell 2000 index, which tracks roughly 2,000 smaller US companies, dropped 1.31% on Wednesday. The S&P 500 fell only 0.22%, according to closing data from TradingView.

The 2 Stocks JPMorgan Chose Anyway

JPMorgan screened smaller companies globally for dividends exceeding their home country’s 30-year bond yield. Two were added to its model portfolio, a curated list of recommended holdings.

• One is Dashenlin Pharmaceutical, a $3 billion Chinese pharmacy chain.
• The other is Befesa, a €1.4 billion German-listed firm that recycles steel industry waste.

Both carry an Overweight rating, meaning JPMorgan expects them to outperform peers.

The strategists noted that today’s dividend availability resembles the 1990s, when long-term yields were declining.

“These are not the 1990s,” they wrote.

Not all analysts share the concern. Jim Bianco, a long-time bond bear, has become bullish on bonds, calling 5% yields fair value.

Federal Reserve minutes released on Wednesday showed most officials backing another rate hike in 2026. The Fed’s next decision is scheduled for October 27-28.