Bond market shift raises borrowing costs for governments and tech giants

September 2, 2026 at 06:20 PM3 min

This digest was compiled by AI from multiple sources — links to the originals are below.

Global bond markets are undergoing a fundamental shift, with governments facing multi-decade high interest rates. The immediate trigger is the closure of the Strait of Hormuz and renewed US-Iran hostilities, which have pushed up inflation and rate expectations. Even as markets had hoped for a resolution before the US midterm elections, the crisis persists, and tech giants are now competing for capital, with hyperscalers issuing over $219bn in debt this year.

Key Facts

The closure of the Strait of Hormuz and renewed US-Iran hostilities have pushed up inflation and raised expectations of higher interest rates in major economies.
US hyperscalers such as Google, Amazon and Meta have issued over $219bn (£162bn) of debt this year, nearly a third in non-dollar currencies including sterling.
Japan's government bond yields have been pushed to 30-year highs after its central bank raised interest rates from zero to combat rising inflation.
Economist Mohamed el-Erian identifies AI competition in bond markets as the biggest new factor, while Lord Jim O'Neill attributes the action to uncertainty about US policy.

Geopolitical Trigger

The immediate reason for the rise in borrowing costs is the ongoing closure of the Strait of Hormuz and renewed hostilities between the US and Iran. This has pushed up inflation and, in turn, raised expectations of higher interest rates in the world's major economies. Markets had assumed tensions would subside, and so too would oil and gas prices, ahead of the US midterm elections in November. That assumption was based on the hope that US President Donald Trump would want the conflict resolved well before Americans go to the polls. But that has not happened, leaving markets pricing in higher energy prices, a chronic Gulf crisis, higher inflation for longer, and so higher interest rates.

Tech Borrowing Surge

Big tech companies are turning to the same bond markets to raise hundreds of billions of dollars for investments in AI data centres. Over $219bn (£162bn) of debt has already been issued this year by US hyperscalers such as Google, Amazon and Meta. Nearly a third of that debt was issued in currencies other than the dollar, including sterling. The total issued last year was $93bn, while before that it averaged less than $40bn a year. Some expect the tech giants to raise $400-$500bn from the bond markets this year, raising competition and pushing up the price for governments.

Japan and Global Flows

Japan has the highest debt burden relative to its GDP of the major economies and is the biggest single lender to the US government. Until recently its central bank's interest rate was zero, but that has crept up to help combat rising inflation. As a result, Japan's government bond yields have been pushed to 30-year highs. The declining value of the yen complicates things, but the bottom line is that there is a change afoot in the global flow of money. The biggest factor pushing up rates is the credibility of the borrowing plans set out by major countries, based on the market equation that borrowing more without a credible plan should cost more.