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

International News via 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 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.

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 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.

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

A recent study by Germany’s Ifo Institute found that more than a quarter of German firms expect AI to lead to job cuts in the next five years

International News via Reuters:

The increasing use of artificial intelligence by firms may be creating some jobs in the euro zone rather than destroying them as many fear, a European Central Bank blog post argued on Wednesday.

Economists have been debating whether AI could put white collar staff out of work, and a recent study by Germany’s Ifo Institute found that more than a quarter of German firms expect AI to lead to job cuts in the next five years.

But the ECB’s own Survey on the Access to Finance of Enterprises found that companies making significant use of AI are more likely to take on additional staff in the near term.

“In other words, AI-intensive firms tend, on average, to hire rather than fire,” the blog post, which is not necessarily the view of the ECB, said.

Firms planning to invest in AI are also more likely to have positive expectations for future employment growth, the blog argued.

“This is true regardless of the level of planned AI investment and suggests that a pause in hiring due to investment in AI technology is also unlikely over the next year,” the blog, written by two ECB staff economists, said.

However, the outlook may change on the longer horizon, the authors said. Most of the gloomier surveys cover longer horizons than the ECB’s own question and the outlook could change once AI starts to significantly transform production processes.

Reporting by Balazs Koranyi; Editing by Andrew Heavens

Kyriakos Pierrakakis told a conference organised by the European Investment Bank that Europe’s economy was facing strong demographic headwinds

International News via Reuters:

Europe’s decades-old economic model, which has relied heavily on an expanding workforce, is coming to an end, the chairman of euro zone finance ministers said on Wednesday, pointing to the need to mobilise savings to finance investment and innovation.

Kyriakos Pierrakakis told a conference organised by the European Investment Bank that Europe’s economy was facing strong demographic headwinds and by 2040 its workforce, currently around 200 million people, could be shrinking by close to two million people per year.

“That matters because it changes the equation. Growth can no longer rely on expanding labour supply. It must come from higher productivity. And higher productivity comes from innovation, investment and efficient capital allocation,” he said.

“The growth model that supported European prosperity for decades is reaching its limits,” he said.

Pierrakakis told the conference that the strategic task for the European Union was to mobilise capital more effectively to finance innovation and scale.

“That is the only lever that can raise productivity, increase incomes, strengthen strategic autonomy and build resilience,” he said.

The 27-nation bloc seeks to integrate its different capital markets into a single market where capital would flow more freely so that some 10-11 trillion euros ($12.8 trillion) of Europeans’ savings in bank deposits could be used more productively to finance the growth of innovative companies.

The integration has been slow because of vested national interests and political differences, but geopolitical changes over the last 12 months have given the work a new sense of urgency.

($1 = 0.8596 euros)

Reporting by Jan Strupczewski. Editing by Mark Potter

The school in Minab was hit on Saturday, the first day of U.S. and Israeli attacks on Iran

International News via Reuters:

A United Nations panel of experts said on Wednesday it was “deeply disturbed” by the deaths of children, after the bombing of the Shajareh Tayyebeh girls’ school in southern Iran, which it said killed more than 160 children, citing reports.

The school in Minab was hit on Saturday, the first day of U.S. and Israeli attacks on Iran.

U.S. Secretary of State Marco Rubio said on Monday that the country’s forces “would not ​deliberately target ⁠a school”.

Israel has said it is investigating the incident.

“The Committee is alarmed by reports of strikes on civilian infrastructure, including schools and hospitals, which have injured and traumatised children, and claimed many young lives,” the U.N. Committee on the Rights of the Child said in a statement.

Children must be protected from war, the committee added.

The U.N. Committee on the Rights of the Child is a body of 18 independent experts that monitors implementation of the Convention on the Rights of the Child, which protects children’s rights to education and safeguards them from violence.

On Tuesday, the U.N. human rights office urged what it called “the forces behind a ‌deadly attack on a girls’ school in Iran” to investigate and share insights into the incident, without saying who it believed was ​responsible.

Iran’s ambassador to the United Nations in Geneva, Ali Bahreini, had raised the issue with U.N. human rights chief Volker Turk in a March 1 letter, calling the attack “unjustifiable” and “criminal”.

Reporting by Olivia Le Poidevin, additional reporting by Emma Farge, editing by Kirsti Knolle and Nivedita Bhattacharjee