W. 41 Policy Watch
Bond Yields Rise Globally - Continuing to Make Economic Projections Uncertain
Last week, Reuters reported on bond yields rising globally, as the soaring energy costs fuel inflation. As investments in AI and data centres surge, competition for capital rises and so do forecasts for economic growth. The US 10-year Treasury yield, serving as ameasuring of global borrowing costs and asset prices, rose to 5.34%, the highest since 2002. Federal Reserve Governor Lisa Cook also sees AI and its inflationary effects as a major risk in 2027, noting that AI will boost productivity in the long term, but that the AI build-out could create inflationary pressure and warning that productivity gains could produce disinflation. The Federal Reserve raised the policy rate by a quarter of a percentage point last month to support a “timelier” return of inflation towards the 2% goal.
France’s 10-year bond yields have also hit their highest level since 2002. For the first time since 1998 Britain’s 30-year borrowing costs touched 6%, and Japanese bond yields are at multidecade peaks. As US-Iran tensions cause renewed rises in oil prices, driving yields higher, elevated inflation forecasts point to more interest rate hikes. Further, as investors attribute the current rise in yields to higher borrowing and inflation levels, Reuters cites the Institute of International Finance’s statement that major economies now spend more on interest expenses than investments in AI, defence, or clean energy.
Meanwhile, Finnish central bank chief Olli Rehn told the European Systemic Risk Board that the higher energy prices could bring the euro zone closer to the ECB’s stress point on inflation, but that rising interest rates would slow growth and limit the spread of the energy shock to other prices and wages. He stressed that situations like these highlight the uncertainty of growth and inflation projections. At the same time, US Treasury Secretary Scott Bessent argued that the worries about rising debt and yields overlook the strength of the US economy.
The 2026 Edition of the Science, Research, and Innovation Performance of the EU Report Published
On October 1, the 2026 edition of the Science, Research, and Innovation Performance of the EU Report was published. The report showed that Europe's research and innovation landscape remains strong and of high quality – ranking second worldwide in scientific output. It also concludes that Europe needs to become better at “turning that scientific strength into strategic technologies, market leadership and productivity growth”. Four challenges are highlighted in the report: €560 billion in additional investments are needed to meet targets; fragmented research and innovation efforts across the EU limiting their overall impact; bottlenecks in financing, knowledge valorisation, and technology deployment; and global competition.
The report argues that Europe needs better coordination of investments, both public and private, stronger collaboration between regions, and a more coherent view and focus on the technologies critical to Europe’s future. Further, the report calls for fewer barriers thatprevent research from developing into products and services. The European Commission proposes a stronger research and innovation budget for 2028–2034 along with measures to attract more private and institutional capital, such as the Scaleup Europe Fund. The Commission is also preparing a European Research Area Act, which aims to strengthen coordination between EU and national research, to enhance investment planning and to remove barriers to knowledge and talent circulation. It also proposes a European Innovation Act to make public procurement markets more accessible to innovation companies. According to the Commission, these initiatives complement efforts like Choose Europe and aim to strengthen Europe’s position in strategic technologies.
EU Calls for WTO Reform
The EU is calling for new reforms to the Worl Trade Organisation (WTO). At the WTO trade negations committee, the EU stressed that reform should help address existing blockages and restore the organisation's negotiating function. It also called for more focused, topic-based discussions and continued progress on areas including agriculture, e-commerce and subsidies.
For UK and Swedish business, developments in the WTO reform could contribute to a more effective and predictable framework for international trade, with implications for business operating across global markets.
G7 Countries Agree to Release Diesel Oil
The EU and the US are discussing measures to ease surging diesel prices amid tight global supplies. On 1 October, EU Trade Commissioner Maroš Šefčovič said the EU wants a coordinated approach with the US to secure supply and lower diesel and other oil and gas prices.
The discussions come at a time when the G7 countries have agreed to release 100 million crude and diesel oil barrels from emergency stocks, saying the release will begin immediately and last up to four months. The decision came after pressure from US President Donald Trump, who warned the EU that a failure to draw down emergency diesel inventories and refrain from energy export restrictions could lead to a US ban on diesel exports that could reduce supplies to Europe.
The European commissions Oil Coordination Group had already expressed concern over elevated oil and fuel prices while noting that supply to the EU remained stable. Continued pressure on diesel prices could increase transport and operating costs, while potential restrictions on US exports and the release of European reserves could affect fuel availability as well as market conditions.
Focus sector: Nordic and Baltic Security and Defence
Joint Expeditionary Force Exercise Sees Both the UK’s and Sweden’s Defence Ministers Meet in Iceland
The Joint Expeditionary Force (JEF), a “coalition of ten like-minded Northern European NATO nations” including Sweden, Norway, Finland, and the UK as the Framework Nation, met in Reykjavik alongside representatives from Ukraine and Canada to discuss the JEF’s partnership with Ukraine, Euro-Atlantic security and Canada’s potential membership in the JEF Framework. The UK Ministry of Defence cited combating Russian hybrid threats as background for the new major exercise in the region. Protecting critical infrastructure, strengthening joint command and countering emerging threats are parts of the exercise taking place across the North Atlantic, High North, and Baltic Sea. Closer industrial collaboration and countering hybrid threats are also important parts of JEF’s agenda, highlighting how the collaboration encompasses everything from the data cables connecting the countries to each other and to the wider world, to energy infrastructure critical to both homes and businesses.
Greenland Security Stand-off Could Be Ended with New Security Deal
Two weeks ago, US President Donald Trump and the leaders of Denmark and Greenland, Mette Frederiksen and Jens-Frederik Nielsen, signed a trilateral agreement allowing a larger US military presence in Greenland. The agreement came at a time when the USdemands to annex Greenland have sown mistrust and strained relations with both Greenland and Denmark. The new deal has no end date and is built on a 1951 defence treaty that was the legal basis for the previous US presence during the Cold War. The deal also allows US aircraft and vessels access across Greenland and its waters and bars non-NATO states from establishing a military presence on the island. Further, it blocks states and investors that are neither NATO, NATO partners nor the EU from investing, holdingcontrol of or significantly influencing important and sensitive sectors, such as critical infrastructure and resource extraction.
The trilateral agreement comes just two weeks after the European Commission President, Ursula von der Leyen, announced a new €200 million Global Gateway Partnership Package to be invested in and with Greenland in 2026 and 2027. The Partnership Package seeks to create new economic opportunities for Greenland's local population as well as contribute to a “sustainable, prosperous and peaceful Arctic region”. Several projects within the prioritised sectors have already begun, and new investments are to be explored within areas such as digital connectivity, sustainable raw materials, sustainable energy, capacity building, and jobs and quality of life. Furthermore, the leaders of the European Commission, Greenland, and Denmark signed a renewed Joint Declaration among the EU, Greenland, and Denmark to reinforce their partnership and “strengthen the common investment agenda, political dialogue and people-to-people exchanges”.
Swedish Military Participates in Unique Maritime Operation in Finland
Swedish corvette HMS Helsingborg is the first of Swedish warships to participate in a Finnish operation monitoring the border in the Gulf of Finland. A Swedish warship has never been under Finnish command, but the operation in the Baltic Sea was deemednecessary after Finnish defence forces faced recurring drone incidents and airspace violations. Finnish Minister of Defence, Antti Häkkänen, told Swedish Television (SVT) that the operation relates to the need to prepare for every potential threat against territorial integrity, including drone incursions, and that a deepened cooperation in the Baltic Sea shows that Sweden and Finland are ready for any type of security threat.
Sweden Contributes to NATO Mission in Poland with Fighter Jets
Starting in October, Sweden will contribute to NATO’ defence of its eastern border in Poland with fighter jets. Prime Minister Ulf Kristersson commented that Sweden has prioritised cooperation in the Nordic and Baltic sphere and with Poland during the last four years, and that through collaboration with NATO allies, Sweden, Europe, and Nato will be more secure. The Swedish Gripen jets will contribute to NATO’s integrated air- and robot defence during the mission and secure the logistical centre in south-east Poland, used for military and civilian support to Ukraine.