Interest Rates Soar as Bond Market Competition Heats Up

The global economy is at a crossroads as interest rates continue to soar. The French OAT has risen above 4% for the first time since 2009, and the US 30-year yield is at its highest since 2007. Meanwhile, the Japanese 10-year yield is close to the 3% threshold.

The main catalyst behind this trend is not the current tensions in the Iranian conflict but rather fundamental economic issues that have been building for some time. These include the deterioration of public finances and rising debt burdens in Western countries, as well as the colossal investment expenditure required by AI developments.

Technology companies, particularly hyperscalers like Alphabet, are increasingly turning to the bond markets to finance their AI-related projects. In the first half of 2026, bond issues intended for AI reached 18% of total global investment-grade issue, up from barely 1% in 2024. This influx of bond supply has led to a shift in investment priorities, with long-term government debt being the first casualty.

Investors are finding it increasingly difficult to absorb this flood of new bonds, particularly since hyperscalers finance themselves predominantly through long-term debt, often at substantial premiums compared to government bonds. For example, Alphabet recently issued a 20-year bond in Australian dollars at a rate of 6.95%, while the 20-year Australian sovereign rate stands at 5.45%.

Unless central banks intervene with massive asset purchases, which seems unlikely, this increased competition for debt will continue to fuel higher interest rates. This trend carries significant risks for the global economy's long-term financing needs.