AI-driven surge in bond yields could be next risk for markets and growth

Inflation-adjusted borrowing costs have surged to their highest levels in over a decade, posing potential risks for markets and economic growth. U.S. 30-year real yields are around 3%, near 18-year peaks, while British and German 10-year real yields are at their highest in more than a decade. This surge in real yields can be attributed to the heavy borrowing by AI "hyperscalers" and governments, as investors demand higher returns to purchase the influx of bonds entering the market.

The rise in real yields has also pushed up nominal yields globally, despite inflation expectations remaining relatively steady. Companies like Alphabet, Amazon, and Meta have issued nearly $220 billion in bonds this year, more than double the $108 billion issued in all of 2025. Vivek Paul, UK chief investment strategist at BlackRock, noted the unprecedented competition for capital due to AI development and government spending.

Governments are also heavily borrowing, with U.S., French, and British deficits projected to be around 6%, 5%, and 4% of GDP, respectively. Although economic growth remains strong, the rise in real yields could potentially negatively impact growth if it starts to deter consumption and investment.