BANGKOK – The International Monetary Fund warned Tuesday that government bond yields could rise in a disorderly fashion, as rising inflation, mounting debt and AI-related borrowings pressure sovereign bond markets.
Government bond yields in several advanced economies have climbed to multidecade highs, driven by higher energy costs due to the Middle East conflict and expectations for tighter monetary conditions as central banks look to curb resurgent inflation.
In its latest Global Financial Stability Report, the fund warned that sovereign bond risk could deteriorate, warning of "a sharp rise in sovereign bond yields." The report was released Tuesday as part of the IMF-World Bank annual meetings in Bangkok, Thailand, this week, where more than 18,000 delegates gathered to discuss the state of the world economy and the financial system.
High debt load and rollover risks make the bond market "susceptible to more frequent fiscal and inflation shocks," the report said. The IMF had warned last week that global public debt had reached near its highest level since World War II and was on track to soon exceed 100% of GDP.
"Impact could be severe given the foundational importance of sovereign bond markets," the IMF said Tuesday. A sharp rise in yields would mark down asset values through higher discount rates, including for AI-related assets, and erode the value of government bonds posted as collateral.