The International Monetary Fund (IMF) is warning that yields on government bonds could continue marching higher as risks from debt and inflation worsen.
The Washington, D.C.-based international financial institution warned that government bond yields remain “disorderly” as rising inflation and mounting government debt pressure markets.
Government bond yields in several leading nations such as the U.S. and France have risen to multidecade highs, driven by higher energy costs and expectations for tighter monetary policies.
In its “Global Financial Stability Report,” the IMF says that sovereign bond risk could deteriorate, leading to “a sharp rise in sovereign bond yields.”
Last week, the IMF warned that global public debt had reached its highest level since World War II and is on track to exceed 100% of the world’s gross domestic product (GDP).
The IMF added that increased debt issuance from technology companies to fund the artificial intelligence (A.I.) buildout is competing with sovereign bonds for investor demand.
Investment-grade bond issuance from companies such as Alphabet (GOOGL) and Microsoft (MSFT) has risen to 10% this year from less than 1% in 2024.
Another concern noted by the IMF is the growing holdings of Treasuries by hedge funds around the world, which leaves the market “susceptible to a disorderly unwind.”
Hedge funds’ share of U.S. Treasury bonds rose to 9% in 2025 from 4% in 2022, the IMF said, citing data from the U.S. Federal Reserve.
The yield on the benchmark 10-year U.S. Treasury is at 5.189% on Oct. 13, its highest level in nearly 25 years.
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