BANGKOK – The International Monetary Fund warned Tuesday that government bond yields could rise in a disorderly fashion, as rising inflation, mounting debt and AI-related borrowings pressure sovereign bond markets.

Government bond yields in several advanced economies have climbed to multidecade highs, driven by higher energy costs due to the Middle East conflict and expectations for tighter monetary conditions as central banks look to curb resurgent inflation.

In its latest Global Financial Stability Report, the fund warned that sovereign bond risk could deteriorate, warning of “a sharp rise in sovereign bond yields.” The report was released Tuesday as part of the IMF-World Bank annual meetings in Bangkok, Thailand, this week, where more than 18,000 delegates gathered to discuss the state of the world economy and the financial system.

High debt load and rollover risks make the bond market “susceptible to more frequent fiscal and inflation shocks,” the report said. The IMF had warned last week that global public debt had reached near its highest level since World War II and was on track to soon exceed 100% of GDP.

“Impact could be severe given the foundational importance of sovereign bond markets,” the IMF said Tuesday. A sharp rise in yields would mark down asset values through higher discount rates, including for AI-related assets, and erode the value of government bonds posted as collateral.

IMF also noted the exponentially rising borrowing by AI firms — that compete with sovereign bonds for investor demand — as an additional source of strain on bond markets. Hyperscalers’ share of global investment-grade bond issuance has risen to 10% from less than 1% since 2024, the report said.

The global AI buildout has seen tech giants, such as Alphabet Inc’s Google, Meta Platforms, hyperscalers and AI labs raising hundreds of billions of dollars in debt this year.

“AI-linked issuance – much of it longer-dated – has grown large enough to compete with government bonds for investor capital, even if it does not appear to be the dominant driver of yields,” according to Marc Seidner, CIO of non-traditional strategies at Pacific Investment Management.

Hedge fund worries

Hedge funds’ growing holdings of Treasuries leave the market “susceptible to a disorderly unwind,” the IMF said. Leveraged basis trades have partly unwound without notable pressure in the short-term loan market but the leverage that remains is a concern.

Hedge funds’ share of U.S. Treasuries rose to about 9% in 2025 from about 4% in 2022, mostly through highly arbitraged strategies, the IMF said, citing data from the Federal Reserve.

Caio Ferreira, IMF deputy division chief for financial supervision and regulation, said the worry stems from hedge funds’ rising leverage and their increasingly overlapping positions, meaning multiple funds are holding the same trades, potentially amplifying impact from a collective unwinding.

On the bright side, liquidity has held up in the U.S., Europe and the U.K., the IMF said. Japan is the exception: liquidity in its government bond market has “continued to deteriorate” as yield volatility has risen since the end of yield curve control.

The fund urged debt managers to lengthen maturities, warning that rollover risk could be exacerbated by strategies that replace long-term debt with short-term borrowing on a large scale.

‘Circular’ AI financing

The IMF sounded the alarm over a web of “circular” financing deals among AI firms.

Since 2023, 14 publicly disclosed deals channeled about $300 billion of equity, led by hyperscalers, into financially weaker AI firms, alongside $650 billion of debt. In exchange, the investors secured $1.4 trillion of “future revenue commitments” through services or chip orders, the IMF said.

The revenue promises are what set the deals apart, Jason Wu, assistant director of the IMF monetary and capital markets department, said at a press briefing on Tuesday. “What makes this a little bit unusual compared to previous deals is the future revenue commitments, hence the circularity.”

If AI commercialization falls short, the losses could arrive together. “If there are questions about the monetization in AI, the equity investments will deplete in value, the debt may be difficult to service, and the revenue commitments in the future may not materialize,” Wu said, describing what he called a “triple whammy.”

Such heavy financing and revenue promises cluster in a handful of AI firms, the report said. Due to that concentration, “there are certain companies and nodes that are particularly exposed,” Wu said. “If there are some kind of issues with those entities, then the circularity would pose risk to the market.”

Federal authorities raided the Washington, D.C., home of Rep. Ilhan Omar on Monday morning as part of a criminal investigation of the Minnesota Democrat.

Omar, who has not been charged with a crime, said she was being targeted for political purposes because of her opposition to President Donald Trump.

A person familiar with the situation, who spoke on condition of anonymity to discuss the nonpublic investigation, told CNBC that the probe of the 44-year-old congresswoman is complex and has been going on for years.

MS NOW reported that a law enforcement source with direct knowledge of the raid — which comes weeks before November’s midterm election — said the investigation into Omar is based on allegations of fraud.

Fox News, which first reported the raid, cited a source familiar with the probe as saying it is focused on her immigration paperwork, which was filled out by her father when she emigrated to the U.S. with him from Somalia as a child.

Homeland Security Investigations, a division of the Department of Homeland Security, conducted the raid. HSI investigators were seen outside Omar’s home in the Northeast quadrant of Washington throughout the morning.

Omar, who is seeking reelection, has been a target of criticism by Trump for years. She heckled the president during his State of the Union address to Congress on Feb. 24, which came on the heels of aggressive immigration enforcement actions in Minneapolis by federal authorities.

Omar, who is deputy chair of the Congressional Progressive Caucus, blasted the raid and the investigation in a post on X on Monday.

“I’m ok,” Omar wrote.

“Make no mistake: this is an attempt to target political enemies and weaponize federal law enforcement. For ten years, Trump has targeted me with baseless lies and smear campaigns. This is just the latest escalation in his campaign of political intimidation,” she wrote.

“I will not be silenced.”

Omar became a U.S. citizen in 2000 at 17. She was elected to Congress in November 2018 to represent Minnesota’s 5th District, which includes all of Minneapolis.

She and Rep. Rashida Tlaib, D-Mich., became the first two Muslim women elected to Congress.

The Department of Justice, in a statement to CNBC when asked about the raid, said, “Today in the Washington, D.C., area, Homeland Security Investigations executed a judicially authorized search warrant secured by the Department of Justice.”

“This enforcement action is part of an ongoing federal investigation,” the DOJ said.

Omar’s spokeswoman, Jacklyn Rogers, in a statement said, “This raid by Trump’s DHS is an outrageous abuse of power and an unprecedented escalation in the weaponization of federal law enforcement to target political enemies.”

“For a decade, Donald Trump has relentlessly targeted Congresswoman Ilhan Omar with inflammatory rhetoric, repeatedly putting a target on her back,” Rogers said. “Now, those attacks have escalated to a pointless federal raid. The Congresswoman has done nothing wrong. No president should be able to use the power of the federal government to intimidate his political enemies.”

In September, DHS Secretary Markwayne Mullin told right-wing commentator Benny Johnson at the Republican midterm convention in Dallas that DHS was investigating issues around Omar and her family’s immigration to the United States.

“There may be more to this, the whole family migration and possibly some illegal activity for them to come to the United States to begin with,” said Mullin. He said the investigation could end with deportations.

The DOJ, for years, has had a policy regarding the announcement and initiation of federal investigations and prosecutions close to elections. The policy discourages beginning an investigation, taking investigative steps, bringing criminal charges, or making public statements for the purpose of affecting an election or to give a candidate an advantage or disadvantage.

The person familiar with the raid on Omar’s home told CNBC on Monday that the DOJ does not consider that action to violate the policy because the raid was not meant to be public.

Republican John Nagel is running against Omar in a race the Cook Political Report with Amy Walter rates “solid Democrat.” The general election is just over three weeks away on Nov. 3.

The Democratic leadership of the House of Representatives blasted the Trump administration for the raid.

“The Trump administration’s raid on Congresswoman Ilhan Omar’s home is deeply disturbing and raises serious questions about the continued corrupt weaponization of the federal government against Donald Trump’s adversaries,” said House Minority Leader Hakeem Jeffries, D-N.Y., Minority Whip Katherine Clark, D-Mass., and Rep. Pete Aguilar of California, the Democratic Caucus chair, in a statement.

“For years, Donald Trump and far-right extremists have relentlessly targeted Congresswoman Omar with vile personal attacks and baseless accusations,” the statement said. “Now, less than 30 days until the midterm election, his violent mass deportation machine has descended upon the home of a duly elected Member of Congress and her family.”

“The American people deserve transparency, and we will deliver full accountability for the rogue abuse of power from the Department of Homeland Security and Department of Justice.”

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