By Pete Schroeder
Oct 13 (Reuters) - The International Monetary Fund warned on Tuesday against "complacency" in global financial markets, citing risks from an artificial intelligence-driven selloff, rising government bond yields, or cyberattacks as potential threats facing still- resilient markets.
The body cautioned in its latest Global Financial Stability Report that should AI profits or investments wane, it could trigger a correction in related asset prices that could spill into broader markets.
Such a selloff, as well as a spike in sovereign bond yields or a major cyberattack, were among "plausible near-term catalysts" that policymakers should monitor, the group wrote.
"These risks by themselves do not necessarily threaten financial stability but could become systemic...if they areamplified by underlying vulnerabilities," the group said in the semiannual report, adding that financial stability risks remain elevated.
The IMF said AI investments have so far helped offset economic drags from war in the Middle East and overall policy uncertainty. But it noted "growing evidence" that AI capabilities may not require as much investment, or the potential economic gains may not be as large as expected.
Should the momentum slow, the IMF noted growing leverage in the AI sector could exacerbate any shock by triggering forced selling and higher volatility. For example, hyperscalers now represent 10% of global investment-grade bond issuance, up from less than 1% in 2024.
"The consequences of an AI correction could be global," the IMF warned, as it called on policymakers to curb leverage use, including derivatives and margin loans, where it is "excessive."
RISING YIELDS
The IMF said bond market risks have worsened since its April report, as higher energy prices have driven government bond yields up. For one, policymakers may need to drive up monetary policy rates to tackle inflation, which in turn could worsen debt burdens for nations rolling over short-term debt. In addition, more price-sensitive investors could add upward pressure to yields, and market liquidity could suffer amid the more volatile environment.
Each of those factors could abruptly drive up bond yields, the IMF warned, adding that historically high sovereign debt levels and unresolved fiscal deficits in major economies are adding pressure.
However, bond markets have so far dealt with the stress well, with hedge funds able to unwind some of their repurchase agreement borrowing without triggering turmoil in repo markets, it noted. The group called on policymakers to put public debt on a sustainable path.
The IMF also flagged that technological developments and a growing reliance on a small number of critical providers are making cyber defense more difficult. The group said in over 70% of cases so far in 2026, software providers have had almost no time to patch vulnerabilities before they were exploited, a 20 percentage point jump from a year ago. The IMF said AI can help address some of these risks, but that AI models are also making cyberattacks more sophisticated.
The IMF cautioned that a major attack affecting a critical service or financial institution could undermine confidence, which could quickly ripple throughout markets. It called on policymakers to boost cybersecurity capacity, including stricter oversight of third-party technology vendors.
The IMF said its stress test models showed banks' capital cushions remained robust even in a hypothetical downturn triggered by an AI slowdown and bond market fragility. But it warned of "pockets of weakness," with banks representing 22% of global banking assets found to have "weak" capital levels under the test, up from 18% under the 2025 test.
(Reporting by Pete Schroeder; Editing by Andrea Ricci)
