Geopolitical risks and AI energy demand impact bond markets

Geopolitical tensions in the Persian Gulf, particularly regarding the Strait of Hormuz, are creating significant uncertainty in global bond markets. The potential for escalation involving Iran, the US, and Israel poses risks to energy prices and inflation expectations, which in turn impacts central bank interest rate projections.

In the US, long-term government bonds face structural pressure due to a combination of robust economic performance, high government spending, and a large supply of corporate bonds.

Simultaneously, the rapid expansion of artificial intelligence is driving an unprecedented demand for electricity. New AI data centers require gigawatts of power, leading to a global race for energy capacity. This surge in energy needs, coupled with geopolitical risks in the Middle East, is creating a favorable environment for energy providers and suppliers.