The International Monetary Fund is warning that government bond markets face a growing risk of a sharp, disorderly surge in yields as mounting public debt, renewed inflation pressures and rising borrowing by artificial intelligence companies strain investor demand. In its latest Global Financial Stability Report, released Tuesday during the IMF-World Bank annual meetings in Bangkok, the fund said elevated debt burdens and refinancing needs leave sovereign markets increasingly vulnerable to fiscal and inflation shocks.
Bond yields across several advanced economies have climbed to multidecade highs as higher energy prices linked to the Middle East conflict fuel inflation concerns and push investors to reassess the outlook for interest rates. The IMF cautioned that a sudden jump in yields could trigger broader financial stress by reducing asset valuations, including those tied to AI, while weakening the value of government bonds used as collateral. Meanwhile, major technology companies are competing with sovereign issuers for capital as they finance the expansion of AI infrastructure. Hyperscalers now account for about 10% of global investment-grade bond issuance, up from less than 1% in 2024.
The fund also highlighted growing vulnerabilities in the U.S. Treasury market stemming from hedge funds’ leveraged trading strategies. Hedge funds held roughly 9% of outstanding Treasuries in 2025, compared with about 4% in 2022, with much of the exposure tied to highly leveraged basis trades. Although previous unwinds have not caused major disruption in short-term funding markets, the IMF warned that crowded positions and rising leverage could amplify a sudden rush to exit. Japan’s government bond market remains another area of concern, with liquidity deteriorating as yield volatility has increased.
AI financing presents an additional risk. Since 2023, 14 publicly disclosed deals have directed about $300 billion in equity and $650 billion in debt toward financially weaker AI companies, while generating $1.4 trillion in future revenue commitments tied to services and chip purchases, according to the IMF. The fund warned that these interconnected arrangements could magnify losses if AI monetization falls short of expectations, leaving companies struggling to service debt while promised revenues fail to materialize. The IMF urged debt managers to extend borrowing maturities and reduce refinancing risks, warning that a disorderly rise in yields could spread stress across sovereign debt, technology financing and broader financial markets.
