The Bank for International Settlements (BIS) has raised alarms over the destabilizing potential of surging government debt levels, emphasizing the urgency for policymakers to act preemptively. In its latest quarterly report, the BIS highlighted that global sovereign debt could increase by a third to $130 trillion by 2028, driven by persistently large budget deficits. Claudio Borio, head of BIS’s monetary and economic department, cautioned against waiting for markets to react to oversupply, as any delay could exacerbate the economic impact. While markets have so far avoided “bond vigilante” attacks, where investors force higher borrowing costs, Borio stressed that the growing volumes of government debt are starting to pressure financial markets.
The BIS report also pointed to other critical factors amplifying fiscal risks. The yield on 10-year U.S. Treasuries has climbed by 56 basis points since September, signaling heightened investor concerns. Simultaneously, the Federal Reserve's anticipated rate cuts may not alleviate the growing supply-demand imbalance in the U.S. Treasury market, where record levels of unsold debt persist. Alongside global political and fiscal challenges, such as France's budget deficit and Japan’s expansionary policies, the BIS warned of intensified risks to financial stability. Despite resilient global economic conditions buoyed by robust U.S. growth, the report urged immediate policy adjustments to mitigate these emerging threats.
