Global Bond Yields Soar to Multi-Decade Highs Amid AI-Driven Boom
Bond yields across developed markets skyrocketed this week, with many hitting multi-decade highs as investors demand higher compensation for holding longer-term government debt. The benchmark U.S. 10-year Treasury yield surged to roughly 4.80%, its highest point since President Donald Trump returned to the White House early last year.
The surge is not a moral crusade by fixed income investors seeking to influence fiscal policy, but rather a logical response to economic facts on the ground, including rising deficits and elevated inflation. Treasury Secretary Scott Bessent noted that this bond market woes are a global phenomenon, with 10-year Japanese government bond yields eclipsing 3% for the first time since 1996, and Germany's 10-year Bund yields hitting their highest point in 15 years.
The sharp moves may be a recalibration to a higher neutral rate, as the AI investment boom and other forces put upward pressure on the rate that neither stimulates nor inhibits economic growth. Broadcom's earnings highlighted Big Tech's insatiable appetite for AI infrastructure, with its share price only up about 3% this year.
The next Fed meeting on September 15-16 will be closely scrutinized, with rates markets still believing there's a roughly 75% chance that Chair Kevin Warsh will oversee the first U.S. rate hike since 2023.