Global bond market crisis deepens as debt soars to 92% of GDP
The global bond market is facing increasing volatility, with government bond yields surging worldwide. Bond yields, often viewed as a key indicator of economic health, have been rising.
According to Krungthep Turakij, major economies are grappling with rising debt, most notably the United States. The surge in public debt has driven up interest obligations, forcing the government to allocate a larger share of tax revenues to debt servicing.
This limits its ability to spend on infrastructure development or invest in long-term growth projects. The situation has sparked growing investor concerns over how the debt crisis can be addressed amid a sluggish economy, raising fears of instability across global financial markets.
US debt pushes bond yields higher
In May, Moody’s downgraded the United States’ long-standing triple-A credit rating to Aa1, removing the country from the highest tier of creditworthiness. The move reflected mounting concerns over soaring public debt and widening fiscal deficits.
Fiscal worries are intensifying, with analysts warning that US President Donald Trump’s budget plans could push federal debt up by trillions of dollars over the next decade. The deficit has already surpassed 6% of GDP.
Moody’s projects that government debt will climb from 98% of GDP in 2024 to 134% by 2035, while the fiscal deficit is expected to widen from 6.4% to nearly 9% over the same period.
The downgrade is likely to undermine investor confidence in US Treasuries, especially as concerns grow over America’s rising debt burden. Higher perceived risks translate into increased borrowing costs for both the government and the private sector, raising the cost of credit and weighing on long-term investment and growth.
These fiscal concerns have driven US long-term bonds under pressure. The 30-year Treasury yield has risen from around 4% at the start of 2024 to about 5%, while the 10-year yield has jumped from an average of 2.3% in 2017 to 4.5% today.
G7 debt a ticking time bomb for the global economy
Beyond the United States, other major economies in the G7 are also facing mounting debt crises. According to the International Monetary Fund (IMF), global public debt stood at 92% of GDP at the end of 2024, up from 84% in 2019.
France is seen as the most concerning case in the bloc. Government debt has surged to €3.34 billion, or 114% of GDP, by the first quarter of 2025. Its budget deficit is nearly double the EU’s threshold, while political instability has made fiscal management even more difficult.
As a result, French bond yields have climbed to record highs. Fitch Ratings has downgraded France’s long-term sovereign rating from AA– to A+.
The United Kingdom is also under strain, with public debt standing at 97% of GDP. It faces the highest borrowing costs and inflation in the G7, pushing long-term interest rates to their highest level in more than 25 years.
Japan remains in a class of its own, with public debt at an extraordinary 255% of GDP. Rising inflation and expectations of higher interest rates from the Bank of Japan threaten to drive borrowing costs even higher, while persistent political uncertainty adds to the risks.
Global financial stability at risk
The Institute of International Finance (IIF) warns that the impact of rising debt will not be confined to the United States but is likely to spill over and have significant repercussions across global bond markets.
Bond markets in major economies such as the US, the UK, Germany and France are deeply interconnected through trade and capital flows. As a result, their government bond yields often move in tandem.
This interconnectedness is not one-way. For example, a weak auction of Japan’s 40-year government bonds in late July pushed Japanese yields higher, which in turn drove US Treasury yields up as well.
The IIF report highlights that emerging markets are particularly vulnerable to the rising debt burden of advanced economies.
With more than 60% of global investment concentrated in the US and Europe, less than 7% of funds are available to flow into emerging and developing economies. This leaves them with far more limited access to capital.
Wall Street leaders warn of US bond market collapse
Jamie Dimon, chief executive of JPMorgan Chase, has issued a stark warning that the US bond market is at risk of “collapse” under the mounting pressure of the country’s soaring debt. He urged Trump’s administration to prioritise a more sustainable fiscal path.
John Waldron, president of Goldman Sachs, echoed Dimon’s concerns, describing the widening US deficit as deeply troubling. He cautioned that the biggest current macroeconomic risk is the persistent rise in long-term interest rates, which are driving up the cost of capital across the economy and acting as a brake on growth.
Ray Dalio, billionaire investor and founder of hedge fund Bridgewater Associates, also renewed his warning over America’s swelling debt and deficits. He argued that the situation should leave investors “very worried” about US Treasuries.
Dalio suggested that the only sustainable solution is to cut the US deficit from its current level of about 6% of GDP to around 3%. In practice, however, the political direction appears to be moving the other way.
President Trump’s new budget proposal includes some spending cuts but places greater emphasis on tax reductions, a shift that could further increase fiscal risks in the years ahead.
