Global markets on edge as U.S. debt skyrockets — contagion threat looms, says Institute of Finance

As America's debt load increases, the effects will not just be felt in the United States but will have a global impact, as per a report. The Institute of International Finance (IIF) has highlighted that borrowing costs in some countries like the US create volatility in Treasury bonds that has a ripple effect in other debt, as per Fortune.

US Borrowing Ripple Effects Felt Worldwide

IIF economists cautioned that “The implications of rising U.S. debt levels are not limited to the domestic economy; they are also likely to trigger significant contagion and spillover effects across global bond markets,” quoted Fortune.

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Major Economies Move in Sync

According to the report, IIF's economists have highlighted that, there has been a pattern of sovereign yields moving together, particularly in the United States, United Kingdom, Germany and France, “reflecting the deep interconnections among these economies through trade and capital markets."

Emerging Markets Are Most at Risk

IIF also cautioned that the consequences of America's growing debt might be particularly harsh for emerging economies, which are already struggling with more restricted access to foreign capital, according to the report.

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The economists wrote that, “With the U.S. and Euro Area accounting for over 60% of global cross-border debt portfolios, emerging markets and developing countries represent less than 7%—with many individual countries accounting for only a fraction of a percent,” as quoted by Fortune.

US Budget Concerns Add to the Fear

Concerns about the US debt have increased recently because the Republican budget bill moving through Congress is projected to add trillions to the budget deficit in the coming years, as per the report.

FAQs

Why does US debt matter to other countries?
Because global financial markets are connected, the changes in US borrowing costs can influence rates in other nations.

Which countries are most affected?
Major economies like the US, Germany, and France are closely linked, but emerging markets may suffer the most.