What's behind the move higher in yields? Blame AI
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Sovereign bond yields around the world are on the rise, with many on Wall Street pointing to rising oil prices and inflation fears as the culprits . And while those elements are part of the story, Krishna Guha thinks this runup in yields is largely being fueled by the same catalyst that's sent equities to record highs: artificial intelligence. "High quality hyperscaler debt is a close competitor for government debt and is also hedged in sovereign bond markets, with relative value investors seeking to isolate the chosen issuer risk and net out the underlying macro and wider market risks," said Guha, head of economics and central bank strategy at Evercore ISI. "This issuance is increasingly global across currencies, helping to explain the global nature of the move in yields." A 27% year-over-year increase in U.S. investment grade corporate bond issuance during the first half of the year has been led by hyperscalers, Guha said. "Upward pressure on yields probably not only reflects past issuance, but also expectations of substantially higher supply going forward," the strategist wrote. Guha noted that capital expenditures are expected to increase 36% in 2027 to around $1.3 trillion. That's trillion . That would come on top of a potential 94% increase in 2026, he said. "The combination of rapidly rising investment requirements and falling cash flows suggests that external funding needs could remain substantial," he added. "The prospect that hyperscalers would eventually need to tap debt markets to fund AI investment is not new, but the pace and visibility of such issuance have likely brought greater market attention to the scale of future funding requirements." He added that if the only driver for the rise in yields was inflation, breakeven rates would be going higher. But they are not. Treasury yields got a respite Wednesday after the Treasury Department said it would more than double its buybacks of longer-dated debt. The 30-year bond yield, which touched its highest level this week since 2007, was last down around 9 basis points at 5.195%. It hit a high above 5.33% this week. Yet those declines may prove fleeting as the war in the Middle East continues, putting upward pressure on energy prices and inflation — which could force the Federal Reserve to raise rates later this year. And, if Guha is right, hyperscaler appetite for debt will likely continue growing.