Is the global bond market storm over? The IMF sounded the alarm: the risk of debt and inflation intensified, and yields soared “in a disorderly” manner

The Zhitong Finance App learned that the International Monetary Fund (IMF) warned on Tuesday that global government bond yields may rise in a disorderly manner — rising inflation, rising debt, and AI-related borrowing are simultaneously squeezing the sovereign bond market. This judgment comes from the “Global Financial Stability Report” (GFSR) released by the IMF in Bangkok on the same day. At the time of publication of the report, more than 18,000 delegates were attending this week's annual meeting between the IMF and the World Bank in Thailand.

Government bond yields in many advanced economies have risen to decades-high levels. The Middle East conflict is driving up energy costs, and the market also expects the central bank to tighten monetary policy to curb the resurgence of inflation. On October 7, the 10-year US Treasury yield hit 5.362% in the intraday period, the highest since April 2002; the 30-year term rose to 5.731%, also returning to its high level since 2002; the most policy-sensitive 2-year bond yield rose 2.7 basis points to 4.818%.

Europe and Japan are under simultaneous pressure: France's 10-year treasury yield soared nearly 14 basis points to 4.889% on October 7, 4.896% on October 12; the UK 10-year report was 5.439%, and its 30-year yield had previously risen above 6%, the highest since 1998; Germany's 10-year report was 3.473%; Japan's 10-year yield returned to around 3.1%, standing at a 30-year high since 1996.

October 12 coincided with the US bond market being closed for a holiday. After the Asian session resumed trading on October 13, the 10-year US Treasury yield fell 5 basis points to 5.19%, the US dollar index fell 0.2% to 102.39, and Brent crude futures fell 1.4% to $105.20 per barrel.

Debt and refinancing risk: old accounts need to roll over at new interest rates

The IMF attributes the vulnerability of the bond market to a combination of two variables. The report said that high debt burdens and the need to refinance after debt matures are making the bond market “vulnerable to more frequent fiscal and inflationary shocks.” The IMF warned last week that global public debt is close to its highest level since World War II and will soon exceed 100% of global GDP.

According to IMF fiscal monitoring data, global public debt is close to 94% of global GDP in 2025, and the IMF expects it may reach 100% by 2029. The real pressure comes from refinancing: after the old bonds mature, new bonds need to be issued at current market interest rates. If high interest rates continue for longer, the government's average financing cost will gradually rise. The International Finance Association (IIF) estimates that developed economies have paid more than $3.3 trillion in interest over the past year on government bonds traded in international markets.

The supply side is also ramping up. The US Treasury raised net financing requirements for the third quarter to $739 billion. The IMF therefore urges debt managers in various countries to prolong the term, and warns that large-scale replacement of long-term debt with short-term loans will increase the risk of rolling over.

“Given the fundamental importance of the sovereign bond market, the impact could be serious.” The IMF said in its report. A sharp rise in yield will depress valuations of various types of assets through higher discount rates, including assets related to artificial intelligence; at the same time, government bonds held as collateral will also face shrinking in value.

AI debt issuance increases risk: new contenders from less than 1% to 10%

The report cites AI corporate borrowing as an additional source of pressure on the bond market — they are competing with governments for the same group of investors. According to IMF data, the share of hyperscalers (hyperscalers) in global investment-grade bond issuance has risen from less than 1% in 2024 to 10%. Tech giants such as Google's parent company Alphabet and Meta and AI Labs have borrowed hundreds of billions of dollars this year.

More detailed scale data comes from statistics from other agencies. Since 2026, AI-related debt has issued close to $500 billion; Amazon, Alphabet, Meta, Microsoft, and Oracle have issued a total of about $200 billion or more, of which Amazon is about $54 billion, Alphabet is about $31.5 billion, Meta is about $30 billion, and Oracle is in the $18 billion to $30 billion range; SpaceX completed a $25 billion bond issue in June and was oversubscribed. Bank of America raised its 2026 hyperscale corporate debt forecast from $140 billion to $175 billion after the latest round of issuance; Morgan Stanley expects to issue about $570 billion in global AI-related debt that year; Goldman Sachs expects the group to issue about $250 billion in 2026 and $400 billion in 2027. In the long run, AI-related debt may exceed $1 trillion per year.

Marc Seidner (Marc Seidner), chief investment officer for non-traditional strategies at PIMCO (Pacific Investment Management Company), said that AI-related issuances “are long term and have grown enough to compete with government bonds for investor capital, even if it does not appear to be the dominant driver of yield.”

The pressure is also beginning to be reflected in release pricing. According to Apollo statistics, the subscription multiplier for hyperscale corporate bonds has dropped from 5 times in February to less than 2 times in July; the new issuance of AI-related bonds gave a profit of about 12 basis points, while the investment-grade market averaged about 2.5 basis points. The credit default swap (CDS) market tightened simultaneously: Broadcom's 5-year CDS hit a record 136 basis points, Oracle's 5-year implied default rate rose to over 20%, and SpaceX was around 16%.

Revolving financing: 300 billion equity, 650 billion debt promises 1.4 trillion in revenue

The IMF also sounded a wake-up call for “revolving” financing arrangements between AI companies. The report revealed: Since 2023, 14 publicly disclosed transactions have sent approximately $300 billion in equity (led by hyperscale companies) to less financially well-off AI companies, plus $650 billion in debt; in exchange, investors have received $1.4 trillion in “future revenue promises” in the form of service purchases or chip orders.

Jason Wu, assistant director of the IMF's monetary and capital markets department, said at a press conference on Tuesday that what makes this batch of deals unique is the promise of future revenue, “which is why they are circular.” He described the triple blow that could come at the same time: “If AI monetization goes wrong, equity investments will depreciate, debt may be difficult to repay, and future revenue promises may not be met.”

According to the report, funding and revenue commitments of this scale are concentrated on a few AI companies. Wu said that due to this concentration, “some companies and nodes are particularly exposed”; “if these entities have problems, circularity poses a risk to the market.”

Hedge funds: leverage in the US bond market, preferred amplifiers

In addition to corporate debt issuance, a hedge fund's leveraged position is another IMF marker.

Citing Federal Reserve data, the IMF notes that the share of hedge funds in the US Treasury bond market has risen from about 4% in 2022 to about 9% in 2025, mainly through highly arbitrage strategies. According to the report, some leveraged US bond spread transactions have been closed, and there is no significant pressure on the repurchase market, yet residual leverage still makes the market “vulnerable to disorderly liquidation.”

Hedge funds have become important buyers of US Treasury bonds. According to data from the US Office of Financial Research (OFR), as of the end of 2025, hedge funds held about $2 trillion in cash US bonds, accounting for 7% of the $28.9 trillion tradable treasury bonds, a record high, nearly three times that of five years ago. According to Federal Reserve data, domestic hedge funds were still net buyers in the first half of 2026, with net purchases of US$60.6 billion in the second quarter and US$26.4 billion in the first quarter, totaling about US$87 billion for half a year.

This type of position relies on repurchase financing plus leverage. Don Steinbrugge, founder and CEO of Agecroft Partners, told CNBC that margin trading is very profitable, and leverage is often 20 times or more. He mentioned March 2020: At that time, the liquidity of US bonds deteriorated dramatically, and leveraged funds were forced to quickly close positions, creating a cycle of margin recovery, forced sell-off, and increased volatility. According to Morgan Stanley estimates, leveraged margin trading positions have declined by about one-fifth to $1.2 trillion this year.

IMF Deputy Financial Supervisory Director Caio Ferreira (Caio Ferreira) explained the source of concern: Hedge fund leverage is rising, and positions are increasingly overlapping — multiple funds hold the same batch of transactions, and once they collectively close their positions, the impact may be amplified.

The three major risks, and the only exception

In the framework of GFSR, AI-related asset pullbacks, sharp increases in sovereign bond yields, and cyber threats are listed as the top three risks. According to the report, these risks themselves do not necessarily threaten financial stability, but if amplified by financial vulnerability, they may evolve into systemic risks.

The stress test gave limited cushioning. The report shows that under unfavorable circumstances such as the impact of energy prices, rising inflation and bond yields, and AI-led market adjustments, banks assessed as having “weak” capital levels rose to 22% from 18% in 2025 to 22% of the total assets of the global banking industry.

In terms of liquidity, the IMF confirmed that the liquidity indicators of the US, Europe, and the UK have remained stable, and that the market is “always in an orderly manner.” Japan is an exception: since the end of yield curve control (YCC), liquidity in the Japanese treasury bond market has “continued to deteriorate” and yield fluctuations have increased. According to a report by Pengpai News, Japan's sovereign yield has just recorded an unprecedented fifth consecutive quarter of double-digit growth.

Supply pressure left a mark on the auction data. The US Treasury bid for $39 billion 10-year treasury bonds on October 7. The winning bid interest rate was as high as 5.300% (4.834% in September), the highest bid interest rate for any 10-year treasury bond sale since November 2000.

What does the market think

Athanasios Vamvakidis (Athanasios Vamvakidis), Deputy Director of the IMF's Capital Markets Division, put it more bluntly: Since the release of the previous report in April of this year, the rise in bond yields is “clearly” the biggest change in risk prospects; compared to the AI market correction, the sharp rise in sovereign bond yields is seen as a more immediate and urgent threat.

Market agencies' interpretations are divided. Bank of America's Michael Hartnett made an unconventional deduction: the most favorable event for risky assets before the end of the year was probably the Federal Reserve's interest rate hike in October — using an active tightening to keep long-term yields out of control. Morgan Stanley's Michael Wilson believes that the bond market is already “raising interest rates” for the Federal Reserve. The 10-year US bond yield has been rising by about 120 basis points since February. Financial conditions have been drastically tightened. A moderate CPI this week will ease long-term pressure. Goldman Sachs's trading desk reported that the rate of increase in interest rates is more disturbing than where it was at the end, and oil and interest rates have been decoupled from the mirror assets of the past.

According to the CME FedWatch tool, the probability that the market will stay on hold on the October 28 meeting is 80.6%, down from 82.3% last Friday. The “World Economic Outlook” released by the IMF on the same day predicts real global GDP growth of 3.1% in 2026 (higher than the 3.0% forecast in July) and 3.4% in 2027.