The "money-absorbing black hole" of AI infrastructure bonds drives up real yields, putting the global economy and stock market boom to the test of "capital scarcity"

According to Zhitong Finance APP, as artificial intelligence companies and governments around the world ramp up bond issuance, key indicators for inflation-adjusted borrowing costs in major economies have surged to their highest levels in over a decade, intensifying risks for the stock market and the global economy. The real yield refers to the return on bonds demanded by investors above the rate of inflation and is an important indicator of the true borrowing costs for governments and businesses. Real yields typically depend on expectations of economic growth, interest rates, and the balance of supply and demand for capital.

Decade-High: Real Yields "Break Out" Across the Board

The U.S. 30-year real yield, measured by Treasury Inflation-Protected Securities (TIPS), has risen above 3%, approaching its highest level since the 2008 financial crisis. The 30-year nominal U.S. Treasury yield has simultaneously broken through 5.2%, the highest since 2007. The 10-year U.S. Treasury yield has recently climbed to around 4.75%, marking an 18-month high.

This trend is not unique to the United States. The UK and German 10-year real yields are also near their highest levels in over a decade. The UK 10-year government bond yield once rose to about 5.14%, the highest since July 2008; Germany’s 10-year government bond yield climbed to around 3.12%, the highest since May 2011.

Real yield is the "true" borrowing cost after removing the effects of inflation, and it is a core indicator for gauging financing pressures faced by governments and businesses. In contrast to the increase in real yields, inflation expectations—i.e., the breakeven inflation rate—remain stable at around 2.4%. This indicates that the recent rise in nominal yields is almost entirely driven by real yields rather than deteriorating inflation expectations.

Despite ongoing conflict involving Iran, inflation expectations remain generally stable. In recent months, the rise in real yields has pushed up global nominal yields. Investors and analysts say that while governments everywhere continue large-scale spending, the surge in borrowing by artificial intelligence "hyperscale enterprises" is a major driver of rising yields because buyers require higher returns to keep purchasing the flood of bonds entering the market.

The Driver of "Capital Competition": AI Bond Issuance Surge and Government Deficits

Data from the London Stock Exchange Group (LSEG) shows that companies like Alphabet, Amazon, and Meta have issued nearly $220 billion in bonds so far this year, more than double the $108 billion issued in all of 2025.

Vivek Paul, chief investment strategist for the UK at BlackRock Investment Institute, said: "In recent years, the competition for capital has been unusually fierce, which is unprecedented at this scale. The acceleration of factors such as AI infrastructure construction is intensifying the scarcity of capital, and this is reflected in bond yields."

Governments have also continued to borrow heavily. This year, the U.S. budget deficit is projected to reach about 6% of GDP, or $1.9 trillion; France, 5%; the UK, 4%.

"In Europe, spending on defense, energy security and infrastructure is even more important than AI expenditures themselves," said Al Cattermole, senior fixed income portfolio manager at Mirabaud Asset Management.

The market has also priced in expectations for rate hikes, which, all else equal, usually push real yields higher.

Barclays European rates strategist Max Kitson said relatively strong economic growth, especially in the world's largest economy, the U.S., is an important factor. He also noted that central banks have stopped purchasing bonds, whereas their prior buying had suppressed yields.

Keeping an Eye on Stocks: The Stock Market’s "Sword of Damocles," from Theoretical Transmission to Real-World Pressure

Real yields are the benchmark for the inflation-adjusted borrowing costs faced by governments and corporations. If a bond’s nominal yield is 3% and expected inflation is 2%, its real yield is about 1%. Analysts point out that although sometimes inflation expectations drive nominal yields, recently real yields have been more important.

In theory, higher real yields should reduce the relative attractiveness of stocks. Investors can enjoy higher inflation-adjusted returns from bonds, while the allure of future cash flows (whose present value is calculated based on yields) diminishes.

For now, driven by solid corporate earnings and economic resilience, the stock market continues to hit new highs, alleviating concerns for the time being. JPMorgan has raised its earnings expectations for the S&P 500, while LSEG’s I/B/E/S data shows that profits at European blue-chip companies are set to grow at the fastest pace since the end of 2022.

Matt King, founder of Satori Insights, is less optimistic, pointing out that large technology companies are burning cash and increasingly turning to credit; when that happens, rising real rates will start to make an impact. In a report, he said, “We expect real yields to continue rising until borrowing activity that is pushing yields higher, as well as the rotation of risk capital fueling the stock market, is curbed.”

The rise in inflation-adjusted borrowing costs will also, to some extent, lead companies and households to cut back on consumption and investment, thereby slowing economic growth.

Neuberger Chief Investment Officer Ashok Bhatia said that U.S. real yields remain below 3%-4%, and he believes levels below this may affect economic growth. Bhatia added: “But the current level is a warning signal—while economic momentum is currently healthy at 1.5% to 2%, it could start to be threatened.”

Bhatia said that given concerns about fiscal policy, he remains cautious about long-term bonds; while Barclays’ Kitson said that due to politicians’ lack of willingness to reduce budget deficits, real yields could continue to climb.

Kitson said: “The structural factors supporting rising yields remain. There is no reason to believe that these factors will disappear anytime soon.”