Rising Real Yields and AI Investment Impact Long-Term Borrowing Costs

Despite concerns about inflation driven by war, other factors are also influencing long-term borrowing costs. According to Jin10, in the United States, the so-called 'real yields,' which exclude the impact of inflation, have a significant effect, indicating that bond investors are worried about more than just price pressures from the Iran war. Additional factors include the potential further expansion of the already substantial public debt burden, the impact of the AI investment boom, and the increasing likelihood of interest rate hikes by central banks like the Federal Reserve, rather than cuts. Strategists from ING, Goldman Sachs, and Barclays emphasize that a common speculation is that the recent rise in some long-term yields will not be fully reversed even if inflation driven by rising oil prices subsides. This suggests that even if the conflict ends, market borrowing costs may remain near multi-year highs, continuing to pressure governments and the economy.