Global Debt Is Near Historic Highs. The IMF Warns That Bond Markets Could Face a ‘Disorderly’ Spike.

The International Monetary Fund (IMF) is warning that a dangerous combination of soaring government debt, persistent inflation and an unprecedented borrowing boom by artificial intelligence companies could trigger a sudden surge in bond yields, potentially destabilizing financial markets worldwide.

In its latest Global Financial Stability Report, released Tuesday during the IMF-World Bank annual meetings in Bangkok, Thailand, the fund cautioned that sovereign debt markets are becoming increasingly vulnerable to financial shocks as governments and technology giants compete for investors’ money.

The warning comes as government bond yields in several advanced economies have reached multidecade highs, driven partly by rising energy prices linked to the Middle East conflict and expectations that central banks will maintain tighter monetary policies to contain inflation.

The IMF identified the possibility of “a sharp rise in sovereign bond yields” as a major threat to global financial stability, particularly as governments face mounting refinancing pressures.
“Impact could be severe given the foundational importance of sovereign bond markets,” the IMF said.

A sudden increase in yields would push down the market value of existing bonds, raise borrowing costs for governments and businesses, and potentially trigger losses across other financial assets, including investments tied to artificial intelligence.

The warning follows the IMF’s assessment last week that global public debt is approaching its highest level since World War II and could soon exceed 100% of global gross domestic product.

Higher interest rates would make that debt increasingly expensive to service, particularly for governments forced to refinance maturing obligations. The IMF warned that heavy debt burdens and refinancing needs leave sovereign bond markets exposed to more frequent fiscal and inflation shocks.

The consequences could extend beyond government finances. Sovereign bonds serve as essential collateral throughout the financial system, meaning falling bond prices could create additional pressure on banks, investment funds and other financial institutions.

The fund urged government debt managers to extend borrowing maturities rather than rely excessively on short-term financing, which could increase refinancing risks during periods of market volatility. The massive expansion of artificial intelligence infrastructure is introducing another source of competition for capital.

According to the IMF, hyperscalers’ share of global investment-grade bond issuance has surged from less than 1% in 2024 to approximately 10%. Technology companies are borrowing heavily to finance data centers, advanced computing infrastructure and semiconductor purchases, increasing the supply of corporate bonds competing with government debt.

Jason Wu, an assistant director in the IMF’s Monetary and Capital Markets Department, warned that disappointing AI revenues could simultaneously undermine equity investments, debt repayments and anticipated commercial agreements.

“If there are questions about the monetization in AI, the equity investments will deplete in value, the debt may be difficult to service, and the revenue commitments in the future may not materialize,” Wu said, describing a potential “triple whammy.” Another vulnerability involves hedge funds’ growing presence in the U.S. Treasury market as their share of Treasury holdings increased from approximately 4% in 2022 to 9% in 2025.