Global financial markets are expected to experience continued volatility until 2027, driven by rising bond yields and growing concerns over excessive investments in artificial intelligence (AI).
This forecast comes from a recent report by Fitch Ratings, which also anticipates a stabilization in US government bond yields.
Fitch’s report highlights warning signs in global financial markets. The rise in bond yields reflects higher inflation-adjusted interest rates, while recent trends in equity markets suggest an overemphasis on capital expenditure for AI. The US Federal Reserve’s shift towards a more hawkish monetary policy, including an interest rate hike in September – the first in three years – further underscores these concerns.
Fitch has revised its US policy rate forecast to 4.25% through 2027, projecting one additional rate hike before the end of 2026. While the base expectation is for US 10-year yields to stabilize at 4.8% by end-2027, potential disruptions to oil supplies, particularly through the Strait of Hormuz, could push crude oil prices higher, adding pressure on bond yields.
Other factors, such as the unwinding of the Federal Reserve’s balance sheet and increased bond issuance by AI-focused companies, could intensify competition for investor funds. Fitch warns that rapid growth in AI capital expenditure remains a significant credit risk. Concerns are mounting that companies might be overestimating sustainable levels of AI spending, and a reassessment of AI monetization prospects could lead to sharp reductions in capital expenditure, impacting the entire AI value chain and broader capital markets.