In the past few weeks, market indicators measuring inflation-adjusted borrowing costs in major global economies have soared to their highest levels in over a decade.
In the past few weeks, market indicators measuring inflation-adjusted borrowing costs in major global economies have soared to their highest levels in over a decade. As AI companies and governments ramp up bond issuance, risks for the stock market and the global economy are accumulating...
Real yields, the returns bond investors demand above the inflation rate, are a core measure of the true cost of borrowing for governments and corporations. This indicator typically depends on expectations for economic growth, interest rate trends, and the supply-demand dynamics of capital.
Currently, the U.S. 30-year real yield, measured by inflation-linked bonds, is approaching an 18-year high—around 3%, while 10-year real yields in the UK and Germany are also hovering near their highest levels in over a decade.
Investors and analysts point out that against the backdrop of high fiscal spending by governments, the explosive growth in borrowing by AI 'hyperscale computing giants' is becoming the latest factor pushing yields higher. This is because buyers are demanding higher returns to continue purchasing the flood of bonds hitting the market.
Despite ongoing conflicts in Iran, overall inflation expectations remain stable, which also means that the rise in real yields has pushed up nominal yields on global bonds in recent months. The winning yield on the 30-year Treasury bond auctioned by the U.S. Treasury last Thursday was 5.22%, marking the highest borrowing cost for that maturity since 2001.
Surge in AI Bond Issuance
According to LSEG data, U.S. tech giants like Alphabet, Amazon, and Meta have issued nearly $220 billion in bonds so far this year, more than double the $108 billion issued in the whole of 2025.
"We are experiencing a capital competition unprecedented in recent years," said Vivek Paul, chief investment strategist for the UK at BlackRock Investment Group.
"Driven by factors like the continued acceleration of AI infrastructure construction, this competitive landscape of capital scarcity is evolving rapidly and is directly reflected in rising bond yields."
Simultaneously, governments worldwide continue to borrow heavily. This year, the U.S. fiscal deficit is expected to account for about 6% of its GDP (approximately $1.9 trillion), France is expected at 5%, and the UK at 4%.
Al Cattermole, senior fixed-income portfolio manager at Mirabaud Asset Management, pointed out: "In Europe, defense spending, energy security, and infrastructure investment are more critical drivers than AI-specific expenditures."
Additionally, markets are digesting expectations for future interest rate hikes, which, all else being equal, tend to further push up real yields.
Max Kitson, European rates strategist at Barclays, stated that relatively strong economic growth—especially in the U.S.—is an important factor. He also noted that major central banks have stopped buying bonds, whereas their bond purchases had long suppressed yields.
Beware of Stock Market Risks
Real yields are the benchmark for measuring the inflation-adjusted true borrowing cost for governments and corporations.
If a bond has a nominal yield of 3% and an expected inflation rate of 2%, its real yield is approximately 1%. Analysts say that in the past, nominal yields were primarily driven by inflation expectations, but recently, real yields have become a more central determining factor.
In theory, rising real yields diminish the relative attractiveness of stocks. On one hand, investors can obtain higher inflation-adjusted returns in the bond market; on the other hand, the future cash flows of companies—whose present value is discounted based on yields—will also appear less attractive.
So far, however, thanks to strong corporate earnings and resilient economic performance, the stock market, which has repeatedly hit new highs, has not been brought down by these concerns. JPMorgan recently raised its profit expectations for the S&P 500 index; LSEG I/B/E/S data also shows that the profit growth rate of European blue-chip companies is expected to hit its highest level since the end of 2022.
Matt King, founder of Satori Insights, holds a more cautious view. He points out that major tech giants are currently accelerating their consumption of cash reserves and will become more reliant on credit markets in the future. At that point, the rise in real rates will begin to have a substantial impact.
He wrote in a research note: "We expect real yields to continue rising until the high costs completely suppress this wave of borrowing frenzy driving yields higher—and end the rotation into risk assets that previously fueled the stock market rebound."
Furthermore, higher inflation-adjusted borrowing costs, after reaching a certain critical point, could force businesses and households to cut consumption and investment, thereby dragging down overall economic growth.
Ashok Bhatia, chief investment officer at Neuberger Berman, stated that current U.S. real yields are still below his estimated range of 3%–4% that would substantially impact economic growth. "But the current yield level is already a warning signal: while the current 1.5% to 2% economic growth is considered robust, there is a risk of erosion in the future."
Bhatia added that, given concerns about fiscal policy, he remains cautious on long-term bonds; while Barclays' Kitson believes that due to the general lack of political will to reduce fiscal deficits, real yields may continue to rise in the future.
Kitson concluded: "The structural factors supporting higher yields remain deeply entrenched, and there are currently no signs indicating they will recede in the short term."
This article is from the WeChat public account "STAR Market Daily," author: Xiaoxiang
