Global Bond Yields Hit 20-Year Highs Amid AI Boom

Global sovereign bond yields have reached their highest levels since 2007, with the average yield hovering around 4%. In the United States, the 10-year Treasury yield surpassed 5%, peaking at 5.23% in late September. This surge marks a structural shift away from the low-rate era, driven by a combination of record U.S. national debt exceeding $40 trillion, stubborn inflation linked to trade wars and conflict with Iran, and high energy costs.

Kevin Warsh, Chair of the Federal Reserve, attributed the rise to intense competition for capital. Large technology "hyperscalers" are issuing massive amounts of long-dated corporate debt to fund AI infrastructure, which competes directly with U.S. Treasuries for a finite pool of long-term investors. This AI-driven demand for capital, projected to reach over $10 trillion by 2032, has crowded out demand for government bonds and mortgage-backed securities.

To stabilize the market, Treasury Secretary Scott Bessent implemented expanded buybacks of long-dated government debt, though the move failed to halt the climb. The Federal Reserve has also raised policy rates to combat inflation, with markets pricing in a high probability of further hikes in October. These developments have pushed average U.S. mortgage rates above 7%, increasing costs for homeowners and threatening to raise utility bills and local taxes as governments and utilities pass on higher borrowing costs.

While some analysts warn of an AI bubble and fiscal instability, others view the current yields as an attractive entry point for fixed-income portfolios. The volatility has extended globally, impacting bond markets in Japan, the United Kingdom, Germany, France, and Australia.