Commentary by: Chris Edmonds | President, Fixed Income & Data Services, ICE

As surging government bond yields around the world continue to be the dominant story in fixed income markets, this month we consider the role corporate bonds may be playing in exacerbating the global sell-off in sovereign debt.

On October 2, the 10-year Treasury yield closed at 5.31%, its highest level in 24 years (see Figure 1). It went on to reach an intraday high of nearly 5.35% ahead of the $39 billion 10-year auction held on October 7.

Using decomposition data from the Federal Reserve Bank of San Francisco, we can deconstruct Treasury yields into their constituent parts and compare which elements are contributing more to the overall interest rate at different times. The data shows us that something remarkable has happened over the past four weeks.

On September 16 - the date of the last FOMC meeting - the 10-year yield was 5.01%, with 3.73% contributed by average expected overnight rates (essentially, expectations for future short-term interest rates). The remaining 1.28% reflected the term premium (the compensation investors demand for locking up their capital in longer-term bonds).

Following the 25-basis-point rate hike in September, decomposition data gathered on October 8 revealed that the 10-year yield stood at 5.24% on that date (broadly in line with the size of the rate hike). However, the portion attributable to overnight rates had budged up just 5bps, to 3.78%. The lion’s share of that increase - the remaining 18bps - was attributable to the term premium of 1.46%.

This is startling because it suggests that the fixed income market is now demanding additional compensation for the duration risk of lending to the U.S. government for 10 years more than for the prospect of further short-term rate hikes to fight inflation. In other words, over the past month, bond investors appear to have become markedly more concerned about the long-term creditworthiness of the U.S. government.

There are, of course, more factors than just creditworthiness driving investors’ demand for more compensation to hold Treasuries. A major one is the growing number of bond issuers vying for the same pool of investor capital.

Consider the competition for fixed income investor dollars today. Almost $2.2 trillion of corporate bonds were issued in the first nine months of 2026 - that’s up 24% from the same period in 2025. The vast majority of this issuance was from investment-grade corporates - the most creditworthy borrowers in the market apart from government entities. They are also the most likely competitors to peel away investor capital that would otherwise be allocated to Treasuries.

Corporate issuers may just be getting started: JP Morgan estimates that $4.1 trillion in new AI-related debt will be issued by 2030, with $244 billion in corporate bonds already issued by the hyperscalers so far in 2026.

It’s not just corporates issuing more paper: $24.6 trillion in Treasuries were issued or rolled over through September (a 10.2% increase over the first nine months of 2025). Of that total, $3.68 trillion was newly issued debt. Across the entire U.S. fixed income market (including Treasuries, municipals, mortgage-backed securities, corporates, etc.) issuance is up 10.4% in the first nine months of 2026, to $9.5 trillion.

Amid all this new debt chasing the same investor capital, the relative growth in each market has remained largely proportional. Looking at data over the past 15 years, corporate bond issuance rose from $1.05 trillion in 2011 to $2.21 trillion in 2025 - a 110% increase. Over the same period, Treasury issuance surged from $2.10 trillion to $4.82 trillion - a 129% increase. In short, the balance of supply between corporate and government securities has remained relatively stable.

What is different today, however, is the sheer supply of investment-grade corporate paper available in the market that’s paying markedly higher yields than Treasuries for a comparable degree of credit risk. Most AI hyperscaler and semiconductor issuers currently carry either AAA or AA credit ratings - a rating that matches or exceeds the AA rating of the U.S. government. ICE data shows that mega-cap corporate bonds consistently pay much more attractive yields for ostensibly similar credit exposure.

The AI hyperscalers behind much of the estimated $4.1 trillion in forthcoming AI-related debt issuance are some of the biggest constituents in both the ICE BofA US Technology & Electronics Index and the ICE BofA AA US Corporate Index.

Using these two indices as proxies, Figure 1 shows that both benchmarks are currently paying yields at significant spreads over 10-year Treasuries. The ICE BofA US Technology & Electronics Index offers a spread of 91 basis points, largely without meaningfully sacrificing credit quality. That spread also appears to be widening: it was just 51 basis points in September 2025, but investors could have accomplished an additional 40 basis points of pickup 12 months later.

The sheer volume of new bond supply is extraordinary at present, but the market appears to be absorbing it - at least for now. But with Treasuries testing levels last seen in the 20th century, Washington officials should closely monitor for any sign that huge volumes of AAA and AA-rated corporate issuance may be diminishing investor appetite for U.S. government debt.