The International Monetary Fund (IMF) released its latest Global Financial Stability Report at the IMF and World Bank Annual Meetings in Bangkok on Tuesday, warning of a potential disorderly rise in government bond yields due to rising inflation, increasing debt, and AI-related lending putting pressure on sovereign debt markets.
Yields on government bonds in several developed economies have already risen to multi-decade highs, influenced by the Middle East conflict driving up energy costs and the possibility of central banks tightening policies to curb inflation. The report points out that high debt burdens and refinancing risks make the bond market "more vulnerable to fiscal and inflationary shocks." A sharp rise in yields would shrink the value of assets, including AI-related assets, due to rising discount rates, and would also erode the value of government bonds used as collateral.
The IMF specifically noted that AI corporate lending is growing exponentially, competing with sovereign debt for investor funds. Cloud service giants' share of global investment-grade bond issuance has risen from less than 1% in 2024 to 10%. Furthermore, hedge funds' holdings of US Treasury bonds have increased from approximately 4% in 2022 to approximately 9% in 2025, largely driven by highly arbitrage strategies, making the market "prone to disorderly liquidation."
The IMF also warned that since 2023, 14 AI revolving financing deals have involved approximately $300 billion in equity and $650 billion in debt, in exchange for $1.4 trillion in future revenue commitments; if AI monetization falls short of expectations, equity impairment, debt repayment difficulties, and revenue shortfalls may occur simultaneously.
