Rising Long-Term Rates Threaten Credit Markets, AI Funding and Stock Valuations

The past half-decade saw a credit and equity boom driven by ultra-low rates after the 2020 recession, with central banks in the United States, Japan and Europe keeping yields near historic lows. Today, long-term government bond yields have climbed sharply—U.S. 10-year Treasury yields are at 4.75% and 30-year yields at 5.33%, while Japanese and European long-term yields have reached four-decade and post-2010 crisis highs respectively.

This reversal threatens the $2 trillion private-credit market, where defaults have already risen to a multi-year peak of 6% and fund redemptions are tightening. The same rate pressure could dampen the AI investment surge that has contributed about one-third of U.S. economic growth, as higher financing costs and energy prices erode its rationale. Stock markets, trading at valuations comparable to those before the 2001 dot-com bust, also face headwinds as risk-free bond yields become more appealing. The confluence of these factors suggests a looming “Minsky moment,” where credit strains and inflated equity prices may give way to heightened market volatility.