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The Organization for Economic Co-operation and Development estimates that governments and corporations globally will raise a combined US$29 trillion (HK$226.2 trillion) from bond markets in 2026, approximately US$4 trillion more than in 2024, representing an increase of around 17 percent. Of this total, governments are expected to issue approximately US$18 trillion of debt, implying that corporate bond issuance could reach around US$11 trillion.
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The continued expansion in bond supply is undoubtedly one of the key factors behind the persistent rise in global bond yields. However, unlike in the aftermath of the global financial crisis, when central banks relied heavily on quantitative easing to purchase government bonds, central banks are no longer absorbing a substantial portion of new sovereign debt through large-scale asset purchases. The question, therefore, is whether foreign-exchange reserves, institutional investors, corporations and private investors have sufficient capacity and appetite to absorb the ever-growing supply of bonds.
More importantly, the market is now facing what could be described as a "reverse crowding-out" effect. Governments are being forced to issue more debt to finance rising fiscal expenditures, particularly as geopolitical tensions, elevated energy prices and other structural pressures continue to push up government spending. At the same time, corporations – especially those investing heavily in artificial intelligence infrastructure – are also turning increasingly to the bond market to finance their capital expenditure.
This creates competition for a finite pool of capital. As investors allocate more funds towards corporate bonds, particularly those offering higher yields than government securities, some capital that would otherwise have flowed into sovereign debt may instead be redirected towards corporate credit. This reverse crowding-out effect could place additional upward pressure on government bond yields.
There is another important factor that should not be overlooked. Persistent geopolitical instability and elevated oil prices could keep global inflationary pressures higher for longer. Meanwhile, the massive investment cycle associated with AI is increasing demand for electricity, energy and semiconductor-related raw materials. These pressures could feed into broader production costs and make it more difficult for central banks to declare victory over inflation.
As a result, central banks may have less room to ease monetary policy and, in some cases, could even be forced to maintain or raise interest rates. Higher policy rates, combined with the growing supply of government debt, would in turn place further upward pressure on sovereign bond yields, creating additional risks for both the global economy and financial markets.
This raises an important question: Why has China's government bond market not experienced the same degree of yield pressure?
One key difference is the ownership structure of Chinese government bonds. More than 90 percent of China's government bonds are held domestically by financial institutions, corporations and private investors. This strong domestic investor base can help absorb a substantial amount of new government debt and effectively contain upward pressure on sovereign yields.
However, this mechanism comes with its own economic costs. When a large proportion of domestic savings is channeled into government bonds rather than consumption or other productive investments, it can weaken household spending and domestic demand. In other words, while this structure may help keep Chinese government bond yields relatively low, it could also create a different form of pressure on economic growth.
Therefore, the global bond market should not be underestimated. The rise in yields could eventually become a significant source of stress for both the global economy and financial markets.
Andrew Wong is a veteran independent commentator
