Faisal Islam: Bond market wildfire worries world leaders
Global bond markets face multi-decade high borrowing costs driven by Middle East tensions and Big Tech AI infrastructure funding.
Stock photo for illustration only, not from the actual event
- Government borrowing costs across many nations have hit multi-decade highs.
- US-Iran hostilities and the Strait of Hormuz closure drive inflation expectations up.
- US hyperscalers raise over $219 billion in debt this year for AI data centers.
Governments and economic leaders worldwide are growing increasingly anxious as global bond markets face intense upward pressure, with numerous countries dealing with interest rates at multi-decade highs and fundamental shifts in how sovereign debt is funded.
The immediate catalyst stems from the ongoing closure ofစီးပွားရေး Strait of Hormuz and renewed hostilities between the US and Iran, which have driven up energy prices, fueled inflation, and forced major economies to price in higher interest rates for longer periods.
Stock photo for illustration only, not from the actual event
On a broader scale, global borrowing demand is surging from non-governmental sectors as well. Major technology companies are turning to the identical bond markets to secure hundreds of billions of dollars required for massive investments in AI data centers.
US hyperscalers such as Google, Amazon, and Meta have already issued over $219 billion, equivalent to £162 billion, in debt this year. Nearly a third of this total has been raised in non-dollar currencies, including sterling. Last year's total issuance stood at $93 billion, a sharp rise from the historical average of under $40 billion annually, with some forecasts projecting tech giants to borrow between $400 billion and $500 billion this year alone.
The massive influx of tech giants into the bond market creates a fierce competition for capital, directly driving up borrowing costs for sovereign states. This structural shift highlights how the rapid expansion of artificial intelligence infrastructure is exerting unprecedented pressure on global macroeconomic liquidity.
Looking toward Asia, Japan carries the highest debt-to-GDP ratio among major economies and remains the largest single lender to the US government. After maintaining a zero interest rate policy, the Bank of Japan has allowed rates to creep upward to combat inflation, pushing government bond yields to 30-year highs while a declining yen adds further friction to international capital flows.
"The AI competition in bond markets was the biggest new factor."
Mohamed el-Erian
In the UK, long-term borrowing costs have climbed to their highest levels since 1998 ahead of the October Budget. While underlying economic growth has outpaced peers in 2026 despite energy price spikes, market skepticism regarding the government's ability to implement structural reforms and manage welfare spending continues to demand a political risk premium from investors.
Source: BBC Business
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