The world has never owed this much money

Governments around the world are borrowing on a scale with few historical precedents. Investors, remarkably, have continued to lend.

Worldwide government debt reached 93.9% of GDP in 2025, according to the International Monetary Fund’s April 2026 Fiscal Monitor, and is projected to reach 100% by 2029, a level previously recorded only in the aftermath of World War II. Across the 38 countries of the Organisation for Economic Co-operation and Development (OECD), governments borrowed a record $17 trillion in 2025, with borrowing expected to reach around $18 trillion this year, according to the OECD Global Debt Report 2026.

Bond markets, where governments raise money by issuing debt, have largely taken that borrowing in stride. But the conditions supporting this stability are becoming less forgiving. Governments are refinancing enormous quantities of debt at higher interest rates, central banks are buying fewer government bonds, and private investors are becoming more important to keeping sovereign debt markets functioning. 

That resilience will be tested as governments ask investors to absorb trillions of dollars more each year while lending to them becomes more expensive.

The refinancing problem

Governments need not increase spending for their financing requirements to remain enormous. Much of today's borrowing simply replaces older debt that has come due for repayment.

In 2025, OECD governments faced approximately $13.5 trillion in refinancing requirements, the amount of maturing debt that needed to be replaced with new borrowing, nearly 80% of their gross borrowing that year. The OECD expects that figure to rise to about $14 trillion in 2026.

Refinancing is normally routine. The problem is that much of the debt now maturing was issued when interest rates were far lower.

The IMF estimates that global government interest expenditure has risen from around 2% of GDP to nearly 3% in just four years, as governments replace maturing long-term bonds at higher market rates. Although the increase occurs gradually because governments borrow at different times and must repay those debts on different schedules, each refinancing cycle brings more of the higher-rate environment onto public balance sheets.

Governments are therefore devoting more revenue to past borrowing while facing growing demands for defense, aging populations, infrastructure, and social spending. 

Why markets have stayed calm

High debt alone does not produce a sovereign debt crisis. Investors must lose confidence in a government's ability or willingness to service it.

So far, that confidence has largely endured. The OECD's March 2026 Global Debt Report found that global debt markets remained resilient during 2025 despite borrowing reaching historic highs. Government bonds remain important assets for pension funds, insurers, banks, and other investors.

Economic growth has also provided protection. The IMF expects governments' average effective interest rate to remain below nominal economic growth, making existing debt easier to carry relative to the economy. Yet the IMF warns that this advantage has narrowed and is being offset by persistent government deficits. Under its current projections, global debt rises another 8 percentage points of GDP by 2031.

Investors are also demanding more compensation for lending long term. The OECD estimates that the average 10-year term premium, effectively the additional return investors seek for holding longer-term bonds, reached 0.84% at the end of 2025, its highest level in more than a decade.

Governments have responded partly by issuing more short-term debt. Treasury bills accounted for roughly 48% of OECD government borrowing in 2025, close to a record high, and are expected to remain near that share in 2026. This can reduce borrowing costs today, but it also means debt must be refinanced sooner, exposing governments more frequently to changes in market conditions.

A different kind of vulnerability

Record government borrowing is becoming more dependent on private investors.

The Bank for International Settlements (BIS), an institution that serves as a forum for the world's central banks, argues in its 2026 Annual Economic Report that sovereign bond markets have become more reliant on hedge funds and other non-bank financial institutions. These investors can provide valuable liquidity by buying and trading large quantities of government debt, but unlike central banks and some traditional long-term investors, they may quickly reduce their purchases or sell what they already hold when markets become turbulent.

Central banks are also reducing bond portfolios accumulated during “quantitative easing,” when they bought government debt to lower borrowing costs and support their economies. As they withdraw, private investors must absorb a larger share of government issuance.

The BIS warns that this combination can allow markets to appear highly liquid in normal conditions while becoming far less stable during periods of stress. A sudden rise in yields can leave investors that financed large bond purchases with borrowed money scrambling to sell, putting additional government bonds onto the market and pushing borrowing costs higher still. Fiscal pressure can therefore intensify before a country's underlying debt burden reaches any clear long-term limit.

No single danger line

The global debt picture is also highly uneven. A debt ratio that remains manageable for a wealthy country issuing bonds in its own currency may be far more dangerous for a lower-income economy dependent on foreign investors or foreign-currency borrowing.

Even among richer countries, investor confidence depends on growth prospects, political stability, inflation, fiscal policy, and the credibility of institutions. There is consequently no universal debt-to-GDP ratio at which markets automatically stop lending.

What has changed is the margin for error. Governments are carrying more debt, paying higher interest costs, and returning to markets with unprecedented refinancing needs. The investors absorbing that supply are also becoming more sensitive to price and, in some cases, more reliant on leverage.

The extraordinary feature of today's debt landscape is therefore not that a global crisis has already arrived. It is that governments have been able to borrow so much without one. The next test will come when markets are asked to absorb another major shock and investors decide what price they require to keep financing the world's debts.