India’s Economic Affairs Secretary Anuradha Thakur has warned that sharply rising global bond yields are creating a major challenge for emerging economies as governments, technology companies and infrastructure projects compete for an increasingly expensive pool of capital.
Speaking at the Kautilya Economic Conclave in New Delhi on October 4, Thakur said global bond markets can no longer be understood only through interest rates and government budget deficits.
The enormous investment cycle around artificial intelligence is now becoming part of the equation.
Building AI systems requires far more than software.
It requires data centres, advanced semiconductors, reliable electricity and large transmission networks — all of which demand enormous amounts of capital.
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Global Bond Yields Reach Multi-Decade Highs
Government bond yields have risen sharply across several major economies.
Thakur noted that the yield on 10-year US government debt has climbed to its highest level since 2002, while Japan’s 10-year government bond yield is at its highest since 1996.
Reuters separately reported that the 10-year US Treasury yield recently reached around 5.34%, a 24-year high, as investors demanded greater returns amid inflation concerns, heavy government borrowing and fiscal uncertainty.
When bond yields rise, governments have to pay more to borrow.
The effect does not stop there.
Government bond yields act as benchmarks for interest rates across the financial system, influencing borrowing costs for companies, households and other governments.
Why Emerging Markets Face Greater Pressure
Thakur described the situation as a “huge challenge” for emerging markets.
Higher yields in large economies such as the United States can make those markets more attractive to global investors.
That can increase the cost of capital for developing economies competing for the same funds.
It can also put pressure on currencies and capital flows if investors move money toward higher-yielding developed-market assets.
“Global bond markets set the opportunity cost of capital,” Thakur said.
In simple terms, when investors can earn substantially higher returns from relatively safe US government debt, emerging markets may have to offer more attractive returns to compete for capital.
Government Borrowing Is Increasing Supply of Debt
Another pressure comes from governments themselves.
Thakur said government bonds now amount to more than 80% of global GDP, making sovereign debt markets the world’s largest pool of debt and investment.
Governments are borrowing heavily while investors are demanding greater compensation for inflation, fiscal uncertainty and the risk of holding long-term bonds.
That combination pushes long-term yields higher.
Reuters has reported that large government borrowing requirements and concerns about debt sustainability have contributed to the recent global bond sell-off.
The result is a higher price of money throughout the financial system.
AI Boom Is Adding a New Demand for Capital
Thakur highlighted artificial intelligence as another increasingly important reason demand for capital is rising.
The AI boom requires massive physical infrastructure.
Companies need semiconductor manufacturing capacity, high-performance computing systems, data centres, power generation and transmission infrastructure.
Many of those investments are increasingly being financed through debt.
Reuters reported earlier this month that Alphabet, Amazon and Microsoft alone had issued around $220 billion in debt during 2026 to help finance AI infrastructure — more than double the previous year.
That means technology companies are competing with governments, businesses and infrastructure developers for investors’ savings.
If demand for borrowing rises faster than available capital, borrowing costs can rise across the economy.
AI Is No Longer Just a Technology-Market Story
Thakur’s remarks highlight an important shift in how policymakers view artificial intelligence.
AI spending has generally been discussed in terms of chips, models, data centres and technology-company valuations.
But the scale of investment is now large enough to potentially affect global capital markets.
“Global bond yields therefore cannot be understood only in terms of monetary policy or fiscal deficits anymore,” Thakur said, adding that the scale of AI infrastructure investment has become part of the story.
This means the AI boom could affect companies and countries that have little direct involvement in artificial intelligence.
If AI infrastructure absorbs more capital and pushes borrowing costs higher, other industries may also have to finance projects at more expensive rates.
Geopolitical Fragmentation Could Raise Costs Further
Thakur also warned that geopolitics is changing how goods and capital move around the world.
Trade is increasingly being shaped by national security and strategic considerations rather than simply by cost and comparative advantage.
She said that when trade is organised around security and geopolitical concerns, goods and capital move less freely, while trade surpluses and deficits can become sources of political friction.
That fragmentation can increase costs further.
Export controls, tariffs, sanctions and restrictions on technology investment can force companies to build duplicated supply chains or move production closer to politically aligned countries.
Those changes also require investment.
India Says Its Reform Record Could Help
Despite the difficult global environment, Thakur said India has followed a path of steady reform and prudent macroeconomic management.
She expressed hope that predictable global rules and durable partnerships would continue to support investment and growth.
She also pointed to India’s ability to continue attracting foreign direct investment despite the more difficult global financing environment.
The Economic Times reported that Thakur said strong FDI inflows suggest international companies continue to see India as an attractive destination for building long-term capacity.
Foreign direct investment is generally considered more stable than short-term portfolio investment because it usually involves factories, businesses or long-term operating assets.
Higher Global Yields Can Still Reach Indian Borrowers
Even if India continues attracting investment, persistently high global yields matter.
Companies seeking overseas financing may face higher interest costs.
Foreign investors may reassess whether returns available in Indian equities or bonds compensate sufficiently for currency and market risk.
Higher global yields can also affect domestic borrowing conditions indirectly through capital flows and exchange-rate pressures.
The effect does not necessarily mean Indian borrowing costs will rise in exactly the same way as US or Japanese yields.
Domestic inflation, RBI policy, government borrowing and local investor demand remain important factors.
AI Investment Creates an Unusual Global Competition for Savings
The unusual feature of the current cycle is that governments and technology companies are both borrowing heavily at the same time.
Governments need funds to finance budget deficits and infrastructure.
Technology companies need capital to build the physical infrastructure required for advanced AI.
Energy companies and utilities must then invest further to supply electricity to those data centres.
That creates a chain of capital demand across multiple sectors.
Thakur’s warning is essentially that this competition could keep the global cost of capital elevated for longer than policymakers once expected.
What this means for you
Higher global bond yields can eventually affect everything from corporate borrowing and home loans to stock-market valuations and government financing. The new factor is that the AI infrastructure boom itself is becoming large enough to influence the global demand for capital, meaning technology investment can indirectly affect borrowing costs far beyond the tech sector.
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