Golden Opportunity Amid Global Debt Crisis and AI Capital Drain

FX168 Financial News Sept 2—— Global government bonds are experiencing fierce sell-offs! Debt crisis combined with capital siphoning by AI; stagflation risks prompt a restructuring of gold’s underlying logic

Tensions in the Middle East are rising, oil prices are surging again, and the global bond market is undergoing the most severe sell-off in decades. The yield on the US 10-year Treasury climbed to 4.81%, the German 10-year Bund yield hit its highest since 2011, and British and Australian government bond yields also reached multi-year highs.

This article takes Japanese government bonds as an entry point to dissect the causes and transmission mechanisms of the current global debt storm.

Japan’s Predicament: Double Pressure of Fiscal Expansion and Rate Hike Expectations

The Japanese bond market is a microcosm of the global flight from sovereign bonds. The yield on 10-year Japanese government bonds broke above 3%, returning to levels not seen in thirty years.

Since the inauguration of Prime Minister Sanae Takaichi, the government abandoned the annual primary budget balance target and shifted toward aggressive fiscal expansion: the consumption tax cut on food scheduled for April next year is expected to result in an annual tax revenue loss of 4.3 trillion yen, and the total general account budget application for the 2027 fiscal year is as high as 143 trillion yen—about 20 trillion yen more than the initial budget of the previous fiscal year.

The consequences are already apparent: in the 2027 fiscal budget application, expenditures for government bond redemption and interest payments reach 36.63 trillion yen, surpassing social security spending such as pensions and medical care for the first time.

AI’s Capital Siphoning and the Profitability Crisis in Traditional Industries

Beyond geopolitics and re-inflation expectations, there is also a force from the technology sector behind this wave of selling: the AI investment boom.

Global tech giants are racing to dominate AI, massively expanding capital expenditures by issuing high-yield corporate bonds to raise funds for building data centers and other infrastructure.



In stark contrast, most traditional industries are facing simultaneous pressure from high inflation, high interest rates, and rising costs.

Core Analysis: Is AI Siphoning Money, or Is it Debt Crisis Risk Aversion?

The principal reason for this bond market sell-off is deteriorating government debt and sticky inflation, but it is undeniable that AI investment is a powerful catalyst accelerating the bond sell-off.

Ballooning government debt and re-inflation bring both credit and inflation penalties.

US public debt has surpassed $40 trillion, accounting for over 120% of GDP; France’s sovereign debt is about 117% of GDP; Japan’s government debt exceeds twice its GDP.

When the Fed and the European Central Bank maintain a hawkish stance to fight inflation, investors realize that holding long-term sovereign bonds means persistent book losses and eroded purchasing power.

Dumping bonds and demanding higher yields is a rational choice for investors to hedge against fiscal and inflation risk. The mainstream market view is that a US 10-year yield close to 5% is necessary to attract sufficient capital.

AI investment raises the opportunity cost, as tech giants’ high-yield corporates and high growth expectations provide alternative options for capital outflows from the bond market.

If AI infrastructure offers higher expected returns, investors will naturally be even less willing to hold sovereign bonds yielding 3%–4% annually and carrying fiscal risk.

In short, the intractable accumulation of government debt and sticky inflation are the fundamental causes of this sell-off; AI’s absorptive power and high issuance of corporate bonds have just accelerated the process.

The global era of ultra-low interest rates is over for good, and the adjustment pain of high financing costs has only just begun.

Chain Reaction: Asset Repricing and Stagflation Risk

Global risk-free interest rates have risen to historic highs, reshaping the discount rate cornerstone used for pricing financial assets.

High financing costs not only force expensive tech stocks to face valuation corrections but also create a capital drain on the real economy—traditional sectors like manufacturing, consumption, and real estate are cutting investment and employment as they cannot afford the high interest burden, thus eroding the government tax base.

Under the triple blow of high inflation, shrinking traditional industries, and depleted government finances, the global economy is accelerating toward stagflation.

Throughout this process, the logic behind gold pricing is being restructured.

In the short term, as a zero-yield asset, gold carries a higher holding cost when real interest rates are high, making funds more likely to flow toward high-yield fixed income assets.

However, the essence of this bond market sell-off is out-of-control government debt and sticky inflation. Even without monetary overexpansion, cost-push stagflation driven by geopolitical strife and soaring oil prices can also create a malignant environment of economic stagnation paired with soaring costs.

Faced with central banks caught in a dilemma and the eroding purchasing power of fiat currencies, gold’s role as the ultimate safe-haven asset with no counterparty risk will be fully unleashed. Its properties of hedging against inflation and sovereign credit risk make it the final safe haven for investors and central banks to guard against systemic risk.