IMF Warns of Rising Global Market Risks

The International Monetary Fund (IMF) has warned that global financial stability faces elevated risks from a possible slowdown in artificial intelligence investment, rising government bond yields and major cyberattacks. In its latest Global Financial Stability Report, released on October 13, the fund urged policymakers to remain vigilant despite the resilience demonstrated by financial markets so far.

The IMF identified a potential correction in AI-related asset prices, a sharp increase in sovereign bond yields and a significant cyber incident as plausible near-term triggers for tighter financial conditions and market volatility. It cautioned that these risks could become systemic if amplified by existing financial vulnerabilities.

The rapid expansion of AI investment has helped support economic activity amid geopolitical tensions and higher energy costs. However, the IMF said there is growing evidence that AI capabilities may be delivered with less investment than previously expected, or that the economic gains may fall short of market expectations.

A slowdown in AI investment or weaker-than-expected profitability could trigger a reassessment of company valuations. The fund warned that growing leverage across the AI sector could amplify a correction through forced asset sales and heightened market volatility. Hyperscale technology companies now account for 10% of global investment-grade bond issuance, compared with less than 1% in 2024.

The report also highlighted mounting risks in sovereign bond markets. Higher energy prices have intensified inflation concerns and could prompt central banks to maintain or raise interest rates. Higher borrowing costs would increase debt-servicing pressures, particularly for governments that need to refinance short-term debt.

The IMF warned that more price-sensitive investors could add to upward pressure on government bond yields, while market liquidity could deteriorate during periods of volatility. A disorderly repricing of sovereign debt could spread stress across other financial assets and tighten funding conditions for businesses and households.

Cybersecurity is another major concern. The fund said severe cyber incidents could undermine confidence and disrupt critical financial institutions, payment systems and market infrastructure. Rapid digitisation and growing reliance on third-party technology providers have increased potential points of vulnerability, while advanced AI tools could both enable cyberattacks and strengthen defensive capabilities.

The IMF also found that 22% of banks showed weak capital strength under adverse stress-test scenarios, up from 18% in 2025. Although the banking sector remains broadly resilient, the finding highlights uneven vulnerabilities that could become more significant if financial conditions deteriorate.

The fund called on policymakers to monitor excessive leverage, including positions involving derivatives and margin loans, strengthen oversight of public debt risks and address vulnerabilities linked to third-party technology providers. It stressed that the identified risks do not automatically threaten financial stability, but their interaction with existing weaknesses could magnify the consequences of a market shock.