Global bond markets face rising yields as inflation, AI spending and US debt strain investors

Inflation that has not eased is forcing interest rates to remain high, lifting yields on benchmark bonds like Australia's 10-year government note, now near a 15-year peak, and US 10-year Treasuries, the highest since the global financial crisis. Central banks and sovereign investors are trimming US dollar holdings, with the Reserve Bank of Australia cutting its reserve exposure and the Netherlands moving gold abroad, while Norway's sovereign wealth fund plans to reduce Treasury holdings from 70 % to 50 % of its bond portfolio.

Experts point to structural forces—including massive AI spending, defence outlays, net-zero projects and weak fiscal discipline—as drivers of a higher “neutral rate” that may keep cash rates elevated. The Federal Reserve's credibility, under new chair Kevin Warsh, is seen as pivotal; doubts could further spike bond yields. Rising yields raise borrowing costs for mortgages and corporations, threatening property and share prices and potentially pushing economies toward recession.