Global bond markets are undergoing a significant sell-off, driving government borrowing costs to multi-decade highs across the United States, Germany, and Japan. This trend is fueled by persistent inflation concerns, elevated fiscal deficits, burgeoning AI-driven corporate debt, and renewed energy price pressures. For example, the U.S. 30-year mortgage rates have surged to nearly 6.7%, a one-year high, reflecting the rise in 10-year U.S. Treasuries.
Governments are particularly affected as they face higher costs when refinancing maturing debt. Britain's interest bill, for instance, now stands at approximately 4% of its economic output, roughly double its pre-pandemic average and exceeding its defense budget. The U.S. debt pile has surpassed $40 trillion, with debt as a share of economic output at or above 100% in most G7 economies, excluding Germany. This surge in debt, which has seen approximately $100 trillion added globally since late 2019, combined with rising interest rates, is threatening fiscal stability and potentially crowding out other essential government spending.
The global corporate bond market has also seen record issuance, reaching $4.9 trillion so far in 2026, a 14% increase from the previous year. A major contributor to this is the $220 billion in debt issued by five leading AI hyperscalers—Alphabet, Amazon, Meta, Microsoft, and Oracle—this year alone, more than double last year's total. This aggressive borrowing to fund AI investments has added pressure to sovereign bond markets, with these companies willing to pay higher rates, thus pulling up yields across the board. The U.S. Treasury has attempted to stabilize markets through bond buybacks, but concerns about escalating borrowing costs persist, signaling a challenging environment for governments, companies, and consumers alike.
