Real Bond Yields Hit Multi-Year Highs as AI and Government Borrowing Surge | Ukraine news

A powerful contest for capital is reshaping the cost of money, with technology giants and governments competing for investors’ attention.

Real yields on government bonds in the world’s largest economies have risen to their highest levels in more than a decade. One of the main drivers has been a wave of new borrowing: major technology companies are actively financing the expansion of artificial intelligence infrastructure, while governments are not cutting spending.

Rising real yields create a new risk for stock markets and the global economy. Higher rates on debt securities mean more expensive borrowing for governments, businesses, and households, and may also make equities less attractive to investors.

Real yield reflects the return a bondholder expects to receive above the rate of inflation. It is considered an important indicator of the true cost of borrowing and depends on forecasts for economic growth, interest rates, demand for money, and the volume of debt issuance.

The yield on 30-year US inflation-indexed bonds has approached 3%, its highest level in around 18 years. In the United Kingdom and Germany, real yields on 10-year securities are also near their highest levels in more than a decade.

AI companies and governments increase borrowing

Alphabet, Amazon, and Meta have issued nearly $220 billion in bonds since the beginning of the year. That is more than double the $108 billion raised by these companies throughout all of 2025.

Investors are demanding higher yields to continue buying ever-larger volumes of debt securities. Demand for capital from major technology companies has become particularly noticeable as they increase spending on data centers, computing capacity, and other artificial intelligence-related projects.

There is competition for capital that has recently been relatively unprecedented.

– Vivek Paul

Due to factors such as the increasingly rapid rollout of AI infrastructure, capital scarcity dynamics are intensifying, and this is reflected in bond yields.

– Vivek Paul

At the same time, government borrowing remains substantial. The US budget deficit is expected to reach around 6% of GDP this year, or $1.9 trillion. In France, it stands at about 5% of GDP, while in the United Kingdom it is approximately 4%.

In European countries, pressure on the bond market is being driven not only by investment in AI. Spending on defense, energy security, and infrastructure projects also plays a significant role.

Real yields are also affected by expectations of further rate hikes. At the same time, central banks are no longer buying bonds on the scale they once did, weakening market support for debt security prices.

Why high real yields are dangerous for equities

If a bond’s nominal yield is 3% and expected inflation is 2%, its real yield is approximately 1%. In recent months, rising real yields, rather than changes in inflation expectations, have become the main reason for higher nominal rates in many countries.

Higher real rates may reduce interest in equities. Bonds begin to offer better inflation-adjusted returns, while the valuation of companies’ future earnings declines because financing becomes more expensive.

For now, stock markets remain near record highs thanks to strong corporate results and a relatively resilient economy. JPMorgan has raised its earnings forecast for the US S&P 500 index, while profits at major European companies are expected to grow at their fastest pace since late 2022.

However, risks could intensify if major technology companies become increasingly dependent on debt financing. In that case, more expensive debt could hurt both investment in AI and overall demand for risky assets.

We expect real yields to continue rising until they suppress the borrowing that caused this increase, as well as the shift toward risk assets that has supported the stock market rally.

– Matt King

Implications for global economic growth

When the inflation-adjusted cost of credit rises too high, companies may scale back investment plans and households may reduce spending. Ultimately, this could slow economic growth.

Ashok Bhatiya believes that real yields in the United States have not yet reached the 3–4% range at which their impact on economic activity becomes noticeable. At the same time, current levels are already a warning sign for growth, which is now estimated at 1.5–2%.

But the current level is a warning signal that growth, although currently resilient at 1.5% to 2%, could come under threat.

– Ashok Bhatiya

Concerns over fiscal policy and politicians’ reluctance to reduce deficits may keep real yields high going forward. Under such conditions, the flow of bonds from governments and technology corporations remains an important factor that could shape the cost of money, conditions in the stock market, and the pace of global economic growth.