Inflation biggest risk to debt markets facing 'big stress test', OECD official says

OECD: Inflation and Rising Yields Create Biggest Stress Test for Debt Markets

By Yoruk Bahceli

OECD Warns of Mounting Risks in Global Debt Markets

LONDON, March 4 (Reuters) - Inflation is the major risk facing global bond markets, a senior OECD official told Reuters, as energy prices surge following the U.S.-Israeli air war against Iran.

"Now we are having another big stress test," Carmine Di Noia, the OECD's director of financial and enterprise affairs said in an interview ahead of the release of the Paris-based organisation's annual debt report on Wednesday.

Oil prices are up 16% this week and government bond yields have jumped on investor fears over inflation if higher energy prices persist.

If that happens, higher bond yields would "put even greater pressure" on debt markets given financing needs and borrowing costs remain high, Di Noia added.

Shorter Maturities and Refinancing Risks

Rising Borrowing and Changing Debt Profiles

SHORTER MATURITIES RAISE RISK OF REFINANCING

The OECD expects governments and companies to borrow $29 trillion this year, up from over $25 trillion last year.

They have reduced the maturities of the new debt they sell and higher yields could reinforce that dynamic, Di Noia said.

He noted that the conflict has stoked uncertainty at a time when the investor base for bond markets is changing. Price-sensitive investors like hedge funds are playing a bigger role in the markets, which the OECD warned could stoke volatility.

Record Refinancing Needs and Emerging Market Vulnerabilities

The share of government bond issuance maturing in more than 10 years reached its lowest point since 2009 and the lowest on record for corporates in 2025, the OECD report said.

That raises the risk of refinancing, which at a record $13.5 trillion, reached 80% of borrowing for OECD countries in 2025, as more debt comes due sooner and rising yields feed faster into debt costs. Emerging markets, where over a third of the debt stock matures in the next three years, are particularly vulnerable.

Post-pandemic rate hikes to tackle inflation raised bond yields significantly and pushed government interest payments up. By 2024 those had already exceeded defence spending, the OECD noted.

AI Debt and the Transformation of Corporate Bond Markets

Surging Borrowing by AI Companies

AI DEBT COULD TRANSFORM CORPORATE BOND MARKET

The OECD said surging borrowing by AI companies as they race to expand data centres and processor needs may make corporate bond markets more "equity-like".

Nine major hyperscalers will need to fund $4.1 trillion of capital spending until 2030, the report said. Funding half of that on the bond markets would mean the nine companies may account for 15% of corporate issuance globally. They include Amazon, Alphabet's Google, Meta and Microsoft.

Implications for Investors and Market Structure

As the nine also make up 12% of global stock market capitalisation, convergence between the two markets might make it harder for investors to diversify investments and hedge risk, Di Noia said.

AI infrastructure may also require additional investments of roughly $5 trillion by 2030, which is likely to raise borrowing by sectors like real estate, energy and IT hardware significantly.

"This calls into question the ability of the currently $17.2 trillion global non-financial corporate bond market to absorb new supply of this magnitude, especially in a context of still-expanding sovereign bond borrowing and a changing investor base," the OECD warned.

(Reporting by Yoruk Bahceli; editing by Dhara Ranasinghe and Emelia Sithole-Matarise)