As rising sovereign debt levels around the world are seen to be taking a toll on macroeconomic stability, developed countries are reaching thresholds that look increasingly unsustainable, with the US debt pile rising above $40tn.
Long-term borrowing costs from the US to Germany and Japan hit their highest in decades last week due to ballooning government debt and geopolitics, raising borrowing costs for companies and households and complicating policy.
Bond markets are entering an era where the inflation and interest rate outlook is more uncertain and the upside risks are greater, as US President Donald Trump’s policies — from tariffs to war — upend the global order.
The uptick in US borrowing comes at a pace fuelled in part by Trump’s invalidated tariffs. The new debt record comes as longer-term US obligations linked to social security and health care have been growing, while interest payments have climbed as well.
Rising US debt comes as concerns over inflation and government spending have been driving investor worries, and the cost of borrowing has grown. The war in the Middle East has also piled pressure on Trump, costing the lives of 18 American service members and $37.5bn in military spending as the nearly six-month-old conflict grinds on with little sign of resolution.
Moreover, defence spending shows no sign of slowing, with the House of Representatives narrowly passing an annual defence policy bill in July that would authorise a record $1.15tn in funding for the Pentagon.
As a result, the dollar remains at risk of further declines as investors parse Washington’s expanded sanctions against Iran and renewed efforts to ease pressure on longer-dated Treasury yields.
Government debt across the world’s advanced economies is expected to reach a record $75.8tn by the end of 2026, as persistent fiscal deficits, geopolitical uncertainty, and rising public spending continue to strain national budgets, according to a report from Fitch Ratings.
Global public debt stands at approximately $111tn, according to comprehensive sovereign debt tracking data from the International Monetary Fund. This reflects a steady climb from $102tn at the end of 2024 and $99.2tn recorded across general government balances by mid-2025.
The global fiscal deficit continues to average around 5.1% of GDP, reflecting legacy costs from pandemic responses combined with rising net interest costs, according to the IMF. Many governments continue running what amounts to recessionary budget deficits despite having exited recessions years ago.
Thirty-year bond yields in the US, the world’s deepest and most systemically crucial government bond market, has hit their highest since 2007 as oil prices rose back above $90, fanning inflation worries as US-Iran peace hopes faded. In Japan, inflation angst and expectations that the central bank could hike interest rates as early as September pushed 10-year borrowing costs to a three-decade high.
In Europe, Germany’s 10-year Bund yield has touched its highest since 2011, French yields are at their highest since 2008 and Britain’s 30-year borrowing costs neared peaks hit in May that marked the highest levels since 1998. The selloff in government bonds markets matters because the repercussions ripple through economies. Sovereign debt sets the benchmark for borrowing costs for companies and other loans, including household mortgages.
Governments should revert to previous norms on what constitutes excessive sovereign debt: 40% of GDP for low-income economies, 60% for high-income economies, with everyone else in between, according to a World Bank blog in 2025.