Global Bond Markets Hit by Fierce Sell-Off! U.S., Japan, Europe Yield Rates Surge—AI Boom Emerges as Hidden Driver

Global bond markets saw a further expansion of sell-off pressure on Tuesday (18th), with government bond yields in major economies such as the United States, Japan, Germany, and France climbing to multi-year or even decades-long highs. In addition to oil prices once again surpassing $90 per barrel—reigniting inflation concerns—elevated national debt levels and fiscal deficits continue to trouble markets. Notably, this round of bond market volatility includes a rarely seen force: the AI boom is now pitting tech giants against governments in a battle for funding in the bond market.

According to Reuters, the yield on U.S. 30-year Treasury bonds rose on Tuesday to its highest level since 2007, while Japan’s 10-year government bond yield approached 3%, marking a roughly 30-year high.

Europe was not spared either. Germany’s 10-year government bond yield reached its highest since 2011, France’s rose to its highest since 2009, and the UK’s 30-year bond yield neared the peak seen in May this year—the highest since 1998.

Bond prices and yields move inversely, so the broad rise in yields reflects clear selling pressure on long-term government bonds globally.

Oil Prices Up Over 50%—Inflation Fears Return to Haunt Bond Markets

This sell-off was initially driven by rising energy prices.

As prospects for U.S.-Iran peace dim, crude oil prices have returned above $90 per barrel. Oil prices have risen approximately 50% year-to-date, prompting market concerns that energy costs could once again push up prices, making it harder for major central banks to quickly ease monetary policy.

Japan faces particularly visible pressure. In addition to inflation worries, expectations are growing that the Bank of Japan may raise interest rates as early as September, pushing Japan’s 10-year government bond yield close to 3%.

Kjersti Haugland, Chief Economist at DNB Carnegie, believes global bond markets are entering an environment fundamentally different from the post-financial crisis era. The era of low interest rates and low inflation is gradually ending, and uncertainty around inflation and interest rate outlooks is increasing—with risks skewed more to the upside.

The problem is that this shift coincides with government debt levels already at historic highs.

Major economies including the U.S., Japan, France, and the UK face varying degrees of fiscal pressure. In Europe, rising defense spending adds further pressure, meaning governments may need to raise even more funds in the future. As markets must absorb a larger supply of sovereign bonds, investors naturally demand higher yields as compensation.

AI Boom Unexpectedly Adds Pressure—Tech Giants Join the Funding Race

Compared to previous bond sell-offs, this year has seen a new structural shift.

Tech giants are aggressively raising capital through bond markets to build large-scale AI data centers, purchase NVIDIA chips, and fund other computing infrastructure. The funding needs of these hyperscale AI cloud operators are now directly competing with governments that already rely heavily on debt issuance.

Barclays notes that what truly sets this year apart is not just the rapidly expanding scale of AI-related corporate borrowing, but also the lengthening of bond maturities. Increasingly, AI-related corporate bonds have maturities exceeding 10 years.

This means tech giants are no longer just competing in the short-to-medium-term bond market—they are now directly vying with long-term government bonds for the same pool of capital.

When markets simultaneously face widening government deficits, increased sovereign bond supply, and massive AI-driven financing from tech giants, investors have more high-yield bond options. Governments may therefore need to offer higher borrowing costs to attract buyers.

Warsh Reduces Policy Communication—Market Visibility Declines

Wall Street is still adjusting to the policy style of Federal Reserve Chair Kevin Warsh since his appointment.

Leadership changes at the Fed typically increase market volatility, but Warsh’s reduced public communication and refusal to provide forward guidance on interest rates make it harder for investors to anticipate how the Fed will respond to inflation and other economic shocks.

The lack of clear policy signals increases uncertainty in bond investing, prompting markets to demand higher risk premiums.

Long-Term Bond Shock Spreads Beyond Bond Markets

The impact of the global long-bond sell-off may gradually spread to other markets. Government bond yields are a key pricing benchmark for corporate financing, mortgages, and other loans. If sovereign yields remain elevated for an extended period, borrowing costs for businesses and households could rise, further tightening the overall financial environment.

This poses a potential threat to the economic growth that has recently driven stock markets to new highs.

In other words, global markets are now facing not just the question of “when interest rates will fall,” but a new reality where both governments and corporations require massive amounts of capital simultaneously.

With oil prices and inflation concerns resurging, government deficits expanding, and AI capital expenditures creating unprecedented financing demands, multiple forces are converging in the global long-term bond market—challenging the low-interest-rate-based investment environment that has prevailed for over a decade.