A worldwide repricing is spreading across debt markets, while energy shocks, central-bank signals, and AI investment plans intensify pressure on investors.

Global bond markets faced a harsh reality check this week. Government bond yields in developed countries rose sharply as investors grew increasingly concerned about high budget deficits, persistent inflation, and large-scale debt financing for investments in artificial intelligence.

As stated by Reuters

This appears less like an attempt by investors to force governments to change their fiscal policies and more like a rational response to economic conditions. Markets are increasingly moving away from the assumption that borrowing costs in many major economies will come down quickly.

Bond yields rise in major economies

The yield on 10-year U.S. Treasury bonds rose over the past week to approximately 4.8% – its highest level since Donald Trump returned to the White House at the beginning of last year. This erased the positive effect of U.S. Treasury Secretary Scott Bessent’s announcement two weeks earlier regarding a government bond buyback program.

At the same time, Scott Bessent was right to describe the bond market problems as global. The yield on 10-year Japanese government bonds surpassed 3% for the first time since 1996. In Germany, 10-year bond yields reached a 15-year high, while the yield on 30-year British government bonds rose to levels not seen since 1998. In France, 30-year bonds reached an almost 20-year high.

Some of this rise later eased, particularly after an interview with Federal Reserve Governor Chris Waller. He said the central bank should give disinflation more time and consider keeping current rates unchanged. However, the numerous factors behind the latest volatility suggest that pressure on the bond market may persist.

The term premium on 10-year U.S. bonds – the additional yield investors demand for holding long-term securities instead of continually rolling over short-term loans – remains lower than in Japan or Germany. This indicates that the current sell-off is not primarily driven by concerns about a deterioration in the U.S. fiscal position.

The sharp rise in yields may reflect a reassessment of the so-called neutral rate – the level that neither stimulates nor restrains economic growth. A prolonged investment boom in artificial intelligence and other factors are putting additional pressure on this measure.

The artificial intelligence boom supports demand for debt

The large-scale rollout of artificial intelligence infrastructure shows no signs of slowing. Broadcom’s financial results once again demonstrated how strong technology giants’ demand for the necessary equipment remains. The company expects its revenue from artificial intelligence chips to double by fiscal 2028, reaching approximately $230 billion.

Despite this, Broadcom shares fell after the report was released because its fourth-quarter forecast was weaker than investors had expected. Since the beginning of the year, the company’s stock has risen by only about 3%, significantly underperforming the broader semiconductor index. The company continues to face pressure from concerns about artificial intelligence spending and intensifying competition.

Another major technology company, Nvidia, announced the acquisition of the popular developer platform Hugging Face for $13 billion. This is one of Nvidia’s largest deals and a sign that open artificial intelligence models could become an important source of future demand.

The yen strengthens as central banks raise rates

In the foreign-exchange market, the yen gained approximately 2% over the week and is trading near 156 yen to the dollar. It is heading toward its best weekly performance in more than a month. This may indicate rising expectations of a Bank of Japan rate hike amid the global continuation of a tighter monetary policy cycle.

On Wednesday, the Reserve Bank of New Zealand, as market participants had expected, raised its key rate by 25 basis points to 2.75%.

The resumption of hostilities in the Middle East added further pressure to the bond market. Energy prices rose again: Brent crude climbed above $97 a barrel on Thursday, although it later gave back some of those gains. Over the week, the global oil benchmark could rise by more than 6%.

Even more concerning is the situation with refined petroleum products: gasoline prices and diesel fuel crack spreads remain extraordinarily high.

U.S. plan for Venezuelan oil sparks controversy

The Donald Trump administration unveiled a plan that would give Washington a 35% stake in the private oil company North American Partners for Blue Energy. According to the White House, once the agreement is implemented, the company will become the world’s second-largest private oil producer by reserves.

Washington says the agreement will help replenish depleted strategic oil reserves, lower fuel costs, and revive U.S. production and the energy sector. At the same time, the plan has already faced sharp criticism from Venezuela’s opposition and American Democrats. Some opponents have compared it to a modern form of colonialism.

The proposal also carries significant legal and logistical risks. In particular, it could complicate the restoration of oil production in Venezuela – precisely the process the agreement is intended to accelerate.

Despite the controversy, representatives of oil giants Chevron and Eni met in Caracas with interim President Delcy Rodríguez and U.S. Energy Secretary Chris Wright. The parties signed a series of new energy agreements made possible by a sweeping reform of the oil sector approved in January after former President Nicolás Maduro was removed from power.

Markets prepare for the Federal Reserve meeting

The main event of September will be the U.S. Federal Reserve meeting scheduled for September 15–16. Despite Chris Waller’s cautious remarks, market participants estimate at roughly 75% the probability that Fed Chair Kevin Warsh will lead the first increase in the U.S. interest rate since 2023.

Before Warsh’s speech in Jackson Hole last Friday, that probability stood at around one-third. In his speech, he reaffirmed his commitment to the Fed’s 2% inflation target and his readiness to raise rates if economic data require it. The central bank’s leadership must now convince markets that this policy stance is consistent.

U.S. employment data will also be closely watched. At the same time, they may have a limited impact on the Fed’s decision, since inflation remains the regulator’s main concern rather than the state of the labor market. Economists expect nonfarm payrolls to increase by 56,000 in August after falling by 23,000 in July.

Thus, the latest jump in bond yields looks less like a short-lived panic reaction and more like a reassessment of long-term economic conditions. High interest rates, inflation risks, energy instability, and massive investments in artificial intelligence may continue to shape global financial markets for a considerable time.