IMF Warns of Potential Disorderly Rise in Bond Yields Amid Debt, Inflation Risks
The International Monetary Fund (IMF) has warned that government bond yields could rise sharply and disorderly due to increasing inflation, high debt levels, and AI-related borrowing. The report highlights the vulnerability of sovereign bond markets amid rising fiscal risks and investor competition from AI firms issuing large volumes of long-term bonds. Global public debt is nearing its highest level since World War II and is expected to exceed 100% of GDP soon. The IMF noted that hedge funds have significantly increased their holdings in U.S. Treasuries, making the market more susceptible to a disorderly unwind if leveraged positions are liquidated rapidly. While liquidity remains stable overall, Japan's government bond market has seen deteriorating conditions due to rising yield volatility after ending its yield curve control policy. The report urges governments and debt managers to extend borrowing maturities to reduce rollover risks and mitigate the impact of short-term financing strategies.