Global bond yields are rising as competition for debt financing intensifies, making it harder for the U.S. Treasury to control the terms at which it borrows. Increasing corporate borrowing demand to fund AI infrastructure and Japan’s pivot away from interest rate suppression are the two biggest developments in global bond markets in quite some time.
Specifically, investment-grade companies sold nearly $1.7 trillion in bonds this year, a 27% increase from last year.¹ There are also fewer price-insensitive buyers on the government side, as two of the largest foreign holders of U.S. debt pull back. After years of interest rate repression, Japan is now trying to reduce inflation and fight yen devaluation with higher interest rates. China’s holdings of U.S. Treasuries are at their lowest level in almost two decades as it pivots reserves into other assets.2
Meanwhile, the U.S. Treasury is asking the bond market to finance a near $2 trillion annual deficit and a $40 trillion national debt (6% & 123% of GDP respectively). These enormous deficits and higher borrowing demand globally are turning the U.S. Treasury into a price-taker instead of a price-setter in the bond market.
Last month’s market interventions to support the yen and long-term bonds were efforts to lower interest rates and a demonstration that the Treasury Department still aims to be a price setter in the market. The Treasury’s fight for control matters because the financing math becomes more difficult if rates stay high.3.
The increase in global bond yields is a manifestation of the surging demand for capital. Bond investors are now price-setters and as a result are earning higher yields and expected returns.
1. SIFMA.org
2. CNBC 5/19/2026
3. “Under CBO’s latest projections, the interest rate will exceed the growth rate (R>G) starting in 2031, when both are projected to total about 3.8% on a nominal basis and 1.8% on a real basis. Over time that gap will widen; by 2056, CBO projects a 4.2% (2.2% real) interest rate compared to a 3.5% (1.5% real) GDP growth rate.” (CRFB.org)