​Global bond markets wobble as debt concerns rise

Investor concern is rising as some of the world’s largest economies face increasing bond market stress. Many believe governments are not doing enough to reduce their high debt levels. Guy Miller, chief market strategist at Zurich Insurance Group, warns, “Government debt levels are simply too high and not enough has been done to tackle them.” (Source: Reuters)​

Investors are keeping a close eye on five major economies: France, Britain, the United States, Japan, and Germany. Each of these countries faces its own set of challenges, ranging from political uncertainty to rising borrowing costs, which could impact global financial stability.​

France has emerged at the top of the worry list due to political uncertainty following the ousting of Prime Minister Francois Bayrou over unpopular budget plans. The country’s debt exceeds 100% of GDP, and the budget deficit is nearly double European Union limits. Debt payments could rise to 100 billion euros by 2029, up from 59 billion euros last year. Thirty-year bond yields are at their highest since 2009, and a sovereign ratings downgrade is a real risk. Carol Kong from Commonwealth Bank of Australia notes, “It may take a bond market riot to force together a coalition to pass a budget.”

In Britain, a reshuffle of Prime Minister Keir Starmer’s advisers and an upcoming budget in November have focused attention on the country’s fiscal control. Long-term borrowing costs have surged to the highest levels since 1998, while the pound has weakened. Finance Minister Rachel Reeves may need to raise at least £20 billion to cover shortfalls caused by weak growth and high borrowing costs. Despite challenges, Nordea’s Jan von Gerich believes political will is easier to find in the UK than in France or the US, offering some hope of corrective action.

The United States, with a debt pile nearing $37 trillion, has also caught investor attention. President Donald Trump’s tax-cut and spending bill could add $3.3 trillion over the next decade, according to the Congressional Budget Office. While the US benefits from deep and liquid capital markets, rising debt is pushing investors to demand higher returns for holding Treasuries. Weak demand at recent bond auctions has further raised concerns.​

Japan’s already high debt levels are under greater scrutiny as inflation returns and borrowing costs rise. The Bank of Japan’s reduction in bond purchases has added to market stress, while weak demand at auctions has compounded concerns. Political uncertainty following Prime Minister Shigeru Ishiba’s resignation has pushed 30-year yields to record highs, as investors speculate about the fiscal policies of his successor.

Germany’s debt-to-GDP ratio remains the lowest in the G7, so debt sustainability is not an immediate concern. However, markets are watching as the country borrows more to finance massive stimulus measures. The 2025 budget includes €591 billion in spending, with a €100 billion special fund for defence. Thirty-year yields are at their highest since 2011. Lyn Graham-Taylor of Rabobank observes, “It’s almost a good reason why it’s increasing supply.”

Global debt concerns are drawing investor attention, with France and the US being the most closely watched. The UK and Japan face both political and fiscal pressures, while Germany remains stable despite rising bond issuance. Governments’ responses to high debt levels will be critical in shaping market confidence going forward.

(Disclaimer: This slideshow has been sourced from Reuters)