Escalating Yields of Global Sovereign Bonds
Earlier this week, global sovereign bond yields surged to multi-decade highs as hopes faded for a US/Iran/Israel peace deal, which has kept oil and energy prices elevated — escalating fears for increases in inflation. The 30-year US Treasury yield went above the 5.3% yield (the highest since 2007, with long-term borrowing costs across European and Asian benchmarks spiking to multi-decade highs). According to experts, the massive sell-off in global debt is due to elevated oil prices fuelling inflation fears, highly elevated government fiscal deficits, and massive corporate debt issuance for AI infrastructure.
Analysts advise that investor concerns regarding inflation, government debt and the debt laden AI boom, have converted into selling longer maturity bonds with a heavy price being paid by governments as their costs of borrowing keep rising. Indeed, analysts confirm that in Germany, government costs of borrowing were this week at their highest level since 2011. In France, government borrowing costs were also at their highest point since 2008. Meanwhile, in Japan, government bonds were close to their all-time high recorded in June 1984, and the United Kingdom equivalent long-dated yields were approaching 6%.
Analysts point to AI “hyperscalers” who have dramatically increased borrowing, while governments continue spending at a vastly increased rate. This has been a key factor in pushing up government bond yields, as buyers demand higher returns to keep purchasing the avalanche of bonds coming onto the market. Unsurprisingly, when the US Department of the Treasury held a $25 billion 30-year Treasury bond auction on Thursday 13th August this year, the sale cleared at a high yield of 5.216%, marking the highest borrowing cost for a 30-year bond auction since 2001. Experts pointed out the yield was driven by swelling budget deficits and strong investor demand for higher returns.
*AI Hyperscalers – Defined as large-scale cloud providers or tech giants that operate massive, globally distributed data centres which are packed with specialised chips to train, host, and scale artificial intelligence models. They supply the immense computing power and infrastructure required for the modern AI boom. The biggest AI hyperscalers are: AWS (Amazon Web Services), GCP (Google Cloud Platform), Meta Platforms and OCI (Oracle Cloud Infrastructure), and together, these companies control over 70% of the world’s total AI computing infrastructure.
Experts advise that competition for capital has reached levels rarely seen in recent times. Driven by the rapid AI build-out and other factors mentioned above, this capital scarcity is directly pushing bond yields higher. Data released shows that so far this year, Alphabet, Amazon and Meta alone have issued circa $220 billion in bonds which almost double the total amount of bonds issued in 2025 (which stood $108 billion at close of business 31st December 2025).
In the US, Treasury Secretary Scott Bessent announced a fresh attempt to rein in long-term borrowing—doubling the size of liquidity support for 10- to 30-year Treasuries from his original announcement two weeks ago. This had the effect of lowering the 30-year yield by circa 10 basis points to 5.18%, encouraging a small domino effect on long dated government bonds in other countries. However, this has only increased the Treasury Department’s borrowings, and with the public debt now in excess of $40 trillion for the first time, experts suggest that this is only a temporary fix.
Mid-term elections are in November, and with consumers having to pay higher mortgages, fuel costs, and energy bills, a voter backlash could lead to a lame-duck presidency for the next two years. There is no end in sight for the Middle East conflict, and if Democrats regain control of the Senate, as pollsters currently expect, the US could be rudderless for two years, with long-dated bond yields perhaps elevating even higher than this week’s record peaks.
