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

Across major economies, inflation-adjusted borrowing costs have surged to their highest levels in over a decade due to increased bond sales by AI companies and governments. Real yields, which represent returns demanded by investors above inflation, indicate true borrowing costs for governments and corporations. The 30-year U.S. real yield, based on inflation-linked bonds, is near an 18-year high at around 3%, while Britain and Germany's 10-year real yields are at a decade-high.

This surge in borrowing by AI hyperscalers, coupled with ongoing government spending, has driven up yields as investors demand higher returns for purchasing the flood of bonds entering the market. Despite steady inflation expectations, the rise in real yields has pushed up nominal yields globally. Companies like Alphabet, Amazon, and Meta have issued nearly $220 billion in bonds this year, double the $108 billion issued in all of 2025, leading to a competitive capital market environment.

While strong economic growth, particularly in the U.S., and central banks' reduced bond purchases have played a role, the structural factors causing these increases remain in place, and there are concerns that real yields may continue to rise, potentially impacting economic growth and equity markets.