The International Monetary Fund warned Tuesday that government bond yields risk a "disorderly" spike as multiple pressures converge on sovereign debt markets. The warning came at the IMF-World Bank annual meetings in Bangkok, where the fund released its latest Global Financial Stability Report.
Bond yields in advanced economies have climbed to multidecade highs, driven by elevated energy costs stemming from Middle East conflict and expectations for tighter monetary policy as central banks combat resurgent inflation. The IMF cautioned that high debt loads and rollover risks make bond markets "susceptible to more frequent fiscal and inflation shocks." Global public debt has reached near its highest level since World War II and approaches 100% of GDP, the fund said last week.
A sharp rise in yields would suppress asset valuations through higher discount rates, including AI-related assets, and erode the value of government bonds held as collateral. The IMF identified three specific strains on the market.
First, AI firms now compete directly with sovereign bonds for investor capital. Hyperscalers' share of global investment-grade bond issuance jumped to 10% from under 1% since 2024. Tech giants including Alphabet's Google and Meta have raised hundreds of billions in debt this year. Marc Seidner, CIO of non-traditional strategies at Pacific Investment Management, noted that "AI-linked issuance, much of it longer-dated, has grown large enough to compete with government bonds for investor capital."
Second, hedge funds have become major Treasury holders through leveraged arbitrage strategies. Their U.S. Treasury share rose to about 9% in 2025 from 4% in 2022. The IMF flagged that overlapping hedge fund positions create risk of a "disorderly unwind" if leverage unwinds collectively. Caio Ferreira, IMF deputy division chief for financial supervision and regulation, attributed the concern to hedge funds' rising leverage and increasingly identical trades across multiple funds.
Third, the IMF warned of "circular" financing structures in AI. Since 2023, publicly disclosed deals channeled roughly $300 billion in equity and $650 billion in debt from hyperscalers into weaker AI firms. In return, investors secured $1.4 trillion in "future revenue commitments" through services or chip orders. Jason Wu, IMF assistant director of monetary and capital markets, described this as unusual compared with prior deals. If AI commercialization falters, Wu said, losses could arrive simultaneously across equity investments, debt servicing and revenue commitments, creating a "triple whammy." Concentration risk compounds the danger: financing clusters among a handful of AI firms, meaning disruption at key nodes could ripple across markets.
On a positive note, liquidity held steady in U.S., European and U.K. bond markets. Japan's government bond market was the exception, with liquidity "continued to deteriorate" after the end of yield curve control.