Global bond yields spiked to multi-decade highs on Tuesday, driven by the AI arms race and budget deficits in the US, UK, and Japan. Iran-war inflation and Fed uncertainty added to the bond tantrum, sending a gauge of global yields to its highest level since 2008.

AI companies are flooding debt markets to fund data centers, chips, and power deals, competing directly with government debt for capital from pensions, insurers, and foreign investors. In the US, private foreign investors bought a net $390 billion of corporate bonds over the past year, outpacing the $329 billion they bought in Treasury notes and bonds—down more than 40% from a year earlier.

The irony: high-quality AI debt is crowding out Treasurys, pushing Treasury yields higher to stay relevant. This raises financing costs for projects and drags on stock prices. Alphabet's $25 billion bond offering recently priced at a higher yield than previously paid, showing investors demanding better terms. Rising yields mean pricier mortgages, car loans, and business borrowing costs as governments and AI titans continue to borrow.