RismadarVoice Reporters
September 4, 2026
The recent selloff in global bond markets is being partly driven by growing investor expectations that a key economic measure known as the neutral interest rate, or R-star, may be rising, according to analysts.
R-star represents the estimated interest rate level at which the economy remains stable without either stimulating or restricting growth. A higher R-star could mean interest rates remain elevated for a longer period, putting additional pressure on bond prices and borrowing costs.
Analysts said increased capital spending linked to artificial intelligence development and rising government borrowing in the United States may be contributing to stronger demand for capital, pushing real yields higher.
“The likely drivers for higher R-star could be heavy investment around the AI build-out and higher government debt levels, both of which can boost demand for capital and lift real yields,” Chip Hughey, managing director of fixed income at Truist Wealth, said.
The New York Federal Reserve’s latest estimate from its Laubach-Williams model placed R-star at 1.65% in the second quarter of 2026, slightly lower than the previous quarter’s 1.73%, but above the 1.36% recorded in the first quarter of 2025.
Market participants said the current neutral rate could be higher than official estimates due to increased borrowing by large technology companies involved in artificial intelligence expansion, as well as continued growth in U.S. government debt.
A rise in R-star could complicate the Federal Reserve’s plans for future interest rate cuts, as it suggests policymakers may need to maintain higher rates to manage inflation and economic growth.
Fed Governor Christopher Waller said recent changes in market conditions had led him to consider raising his estimate of the neutral rate, partly because investors appear to be demanding greater compensation for holding U.S. government debt amid fiscal concerns.
Analysts said higher neutral rates are placing upward pressure across the Treasury yield curve, particularly on longer-term bonds. The 30-year yield has been especially affected due to concerns over high government debt levels and persistent budget deficits.
The impact of artificial intelligence investment has also added to market concerns, as major technology companies continue raising funds for infrastructure expansion. Analysts said the effect could either represent a long-term economic shift or a temporary increase in capital demand.
Ulrike Hoffmann-Burchardi, chief investment officer for Americas and global head of equities at UBS Chief Investment Office, said the Federal Reserve may face challenges in returning interest rates to very low levels while demand for capital remains elevated.
However, economists cautioned that it is still too early to determine whether the current rise in R-star represents a permanent structural change or a temporary economic cycle. More data will be required to assess whether increased investment, government borrowing and productivity growth will continue influencing interest rates.
