The bonds of almost all Western countries are at their highest levels for more than ten years, the cost of refinancing public debt rises, but the increase in bond yields also affects investors
For governments and large companies, the interest on bonds issued is becoming increasingly expensive. Nominal and, above all, real yields (net of inflation) have reached levels not seen for ten or twenty years in the main advanced economies, driven by the explosion of public budget needs and the massive debut of artificial intelligence giants on the debt market.
Because interest on bonds is growing
A varied combination of fiscal, macroeconomic and market factors is behind the run-up in yields. Let’s start with the most obvious.
The U.S. Congressional Budget Office projects a U.S. federal deficit of $1.9 trillion for fiscal year 2026, or about 6% of GDP, and expects government debt held by the public to reach 136% of GDP within ten years (today it is 124.6%).
France, despite having committed to reducing the deficit to 5% of GDP from 5.4% last year, is struggling to consolidate its accounts, while public debt has reached 118% of GDP.
The European Commission forecasts a deficit of 5.1% in 2026 and a rise to 5.7% in 2027, with interest spending could reach 124 billion euros by 2030.
Great Britain runs a deficit of around 4% of GDP. Added to this fiscal framework are the end of bond purchases by central banks and the markets’ bets on possible rate increases: factors that are pushing yields upwards.
The implications for Western governments
The most immediate consequence is the increase in the cost of debt servicing. On August 13, 2026, the U.S. Treasury placed a 30-year bond at 5.22%, the highest level since 2001; 30-year real yields are close to 3%, an 18-year high, while British and German 10-year real yields are at the highest levels in over a decade.
The nominal 10-year Treasury yield stands at around 4.6%, up more than 60% from the 2.8% average over the past decade, and 10-year TIPS (which are adjusted for inflation) yield around 2.4%.
This could create a spiral: higher interest costs force new debt issuance, which pushes yields even higher.
Western governments are thus at a crossroads; consolidate accounts with spending cuts or new revenues (austerity, in other words), or accept a growing cost of debt that limits the ability to invest.
The AI factor
The new element of 2026 is the massive participation of AI giants in the primary market, documented in a Reuters analysis.
Alphabet, Amazon and Meta issued nearly $220 billion in bonds in the first seven months of 2026, more than double the $108 billion in all of 2025; including Oracle, we reach 194 billion in bonds placed until the beginning of July.
Morgan Stanley expects global AI debt issuance to top $570 billion in 2026, quadrupling from the previous year, while infrastructure investment by large AI companies is expected to top $700 billion in 2026 and a trillion in 2027.
Then there is another issue to pay attention to, high real returns in fact reduce the relative attractiveness of shares: the present value of future cash flows (the basis of a company’s share value) contracts, while bonds offer more consistent inflation-adjusted returns.
If the trend were to consolidate, investors could gradually move capital from shares towards bonds, finally considered more profitable, and the incredible stock market rally of the last year and a half would come to an end.
