The “gold suction black hole” of AI infrastructure bonds boosts real yields, and the global economy and stock market prosperity are facing the test of “scarce capital”

The Zhitong Finance App learned that as artificial intelligence companies and governments step up their bond issuance efforts, the inflation-adjusted borrowing cost market indicators of major economies soared to the highest level in more than 10 years, which exacerbated the risks in the stock market and the world economy. Real yield refers to returns that are higher than the inflation rate required by bond investors, and is an important indicator of the real cost of borrowing by the government and enterprises. Real returns usually depend on expectations for economic growth, interest rates, and the relationship between money supply and demand.

Ten-year high: the collective “broken line” of real returns

The US 30-year real yield measured by inflation-linked bonds (TIPS) has risen to more than 3%, close to the highest level since the 2008 financial crisis. The 30-year nominal US Treasury yield simultaneously topped 5.2%, the highest since 2007. The US 10-year Treasury yield recently climbed to around 4.75%, hitting an 18-month high.

This trend is not unique to the US. Real 10-year yields in the UK and Germany are also near their highest levels in more than a decade. The yield on UK 10-year treasury bonds once rose to around 5.14%, the highest since July 2008; German 10-year treasury yields climbed to around 3.12%, the highest since May 2011.

Real yield is the “real” cost of borrowing after excluding the impact of inflation. It is also a core measure of government and corporate financing pressure. In contrast to the simultaneous rise in real yields, inflation expectations — that is, break-even inflation — remained stable at around 2.4%. This means that the recent rise in nominal returns is almost entirely driven by real returns rather than worsening inflation expectations.

Despite the ongoing conflict in Iran, inflation expectations are generally stable, and rising real yields have boosted global nominal yields in recent months. Investors and analysts said that while governments are still spending a lot, the surge in AI “hyperscale enterprise” borrowing is a major factor driving up yields because buyers need higher returns to continue to buy the large amount of bonds that are pouring into the market.

Drivers of “capital competition”: AI debt issuance torrents and government deficits

According to data from the London Stock Exchange Group (LSEG), companies such as Alphabet, Amazon, and Meta have issued nearly 220 billion US dollars in bonds so far this year, which is more than double the amount of 108 billion US dollars issued for the full year of 2025.

Vivek Paul, UK's chief investment strategist at BlackRock Investment Research Institute, said: “In recent years, capital competition has been extremely intense, which was unprecedented at the time. Due to the continuous acceleration of artificial intelligence infrastructure construction and other factors, the scarcity of capital is intensifying, and this is also reflected in bond yields.”

Governments also continue to borrow heavily. The US budget deficit is expected to reach around 6% of GDP this year, or 1.9 trillion US dollars; France 5%; and the UK 4%.

“In Europe, defense spending, energy security and infrastructure investments are more important than AI spending itself,” said Al Cattermole, senior fixed income portfolio manager at Mirabaud Asset Management.

The market has also factored in interest rate hikes in the price. When other conditions remain unchanged, interest rate hikes tend to boost actual returns.

Max Kitson, European interest rate strategist at Barclays Bank, said that relatively strong economic growth, especially in the US, the world's largest economy, is an important factor. He also pointed out that central banks have stopped buying bonds, and previous purchases have depressed yields.

Keep an eye on stocks: the “sword of Damocles” in the stock market, from theoretical transmission to actual pressure

Real rates of return are a benchmark for inflation-adjusted borrowing costs faced by governments and businesses. If a bond has a nominal yield of 3% and an expected inflation rate of 2%, then its real yield is about 1%. Analysts said that sometimes inflation expectations are the main driver of nominal returns, but real yields are more important recently.

In theory, higher real yields should reduce the relative attractiveness of stocks. Investors can reap higher inflation-adjusted returns from bonds, while future cash flow (whose present value is calculated based on yield) is less attractive.

Looking at it now, under the impetus of strong corporate profits and full economic resilience, the stock market has repeatedly reached new highs, temporarily easing people's concerns. J.P. Morgan raised earnings expectations for the US S&P 500 index, while LSEG's I/B/E/S data showed that European blue-chip companies' profits will grow at the fastest rate since the end of 2022.

Matt King, founder of Satori Insights, is less optimistic. He points out that big tech companies are using up cash and will increasingly turn to credit, at which time the rise in real interest rates will begin to have an impact. In a report, he said, “We expect real yields to continue to rise until the borrowing activity that drives up yields and the rotation of risk capital that drives up the stock market is curtailed.”

The rise in inflation-adjusted borrowing costs will also, to a certain extent, cause businesses and households to cut consumption and investment, thereby slowing economic growth.

Neuberger's chief investment officer Ashok Bhatia said that the real yield in the US is still below 3%-4%, and he believes that below this level will have an impact on economic growth. Bhatia said, “But the current level is a warning sign. Although the current economic growth momentum is steady, reaching 1.5% to 2%, it may begin to be threatened.”

Bhatia said he is cautious about long-term bonds given concerns about fiscal policy; while Barclays Bank's Kitson said real yields are likely to continue to rise due to lack of will on the part of politicians to cut budget deficits.

Kitson said, “Structural factors underpinning rising yields still exist. There's no reason to think these factors will go away anytime soon.”