In 2025, as the U.S. dollar sold off and 
tariffs went up, investors worried about
U.S. debt troubles

Rightly so: U.S. debt to GDP stands at 125%, according to International Monetary Fund (IMF) calculations. 

But the U.S. isn’t alone in shouldering a massive debt burden. In advanced economies, total debt to GDP stands at 110%, with countries like Japan (230%), France (117%), and Singapore (176%) sporting similar or higher levels of debt to GDP than the U.S. 

Echoing Ernest Hemingway, the debt troubles have come on “gradually and then suddenly.” The trajectory has headed north for decades, but universal government intervention first during the Global Financial Crisis and later during COVID accelerated the trend, bringing the world to the levels we see today. 

We look at the gross debt levels relative to GDP for the G7 economies. We find that sovereign debt is high in the U.S., but not uniquely high. With the exception of Germany, advanced economies are awash in debt. The concern front of mind for investors: Will the high levels of debt around the globe cause investors to demand higher yields? OECD observes that, under quantitative tightening, central banks stepped back from debt markets, while retail and foreign investors stepped in. The latter tend to be more price sensitive and focused on relative yields.

The first shaded area is the Global Financial Crisis and the second shaded area is the Covid pandemic. Sovereign debt has tracked steadily higher over the decades. However, with governments extending to soften the blows of the Global Financial Crisis and 2020 Pandemic, debt levels step-functioned higher in both periods. And in the wake of those periods, debt levels did not come back down. As a result, we now face a trajectory around the world that charts ever higher.

More to come

The IMF expects the trend to continue, anticipating that global government debt could hit 100% of GDP by 2029, which would be the highest level since the aftermath of World War II. 

It’s not just the level of debt that is a concern, it's the cost

In the U.S., the Department of the Treasury and Bureau of the Fiscal Service report the cost of debt service — the interest rate payments on the debt — has sharply risen as rates have climbed. It now stands at $1,216 billion (that’s 17% of federal spending). OECD points out that 42% of all global sovereign debt is set to mature by 2027, meaning that debt that was previously underwritten during periods of very low interest rates may reset at higher rates.

Plus, more debt may be coming

In 2025, NATO members agreed to higher defense spending, increasing the overall military budget to 5% of GDP by 2035. The runway to ramp up is long, but necessary; European NATO members found the previous 2% target challenging. We first showed the impact of this shift in our 2025 Retrospective, and we have included the graph here as well (see below). 

Our analysis looks at the estimated impact of Europe's military spending commitments. The top four NATO members in Europe, namely Germany, the UK, France, and Italy, are projected to grow their combined defense spending to $597 billion, well above the $341 billion that would have resulted from sticking to the 2% of Gross Domestic Product (GDP) trendline.

While this spend could come from reallocating budgets or higher taxes, most experts expect NATO members to finance at least a portion with debt issuance. That’s already begun: Germany, Finland, and Belgium announced higher borrowing needs in the second half of 2025; government bond yields edged higher as a result. 

The concerns may be spurring political action. However, politicians — including those in the U.S. — have yet to articulate clear, actionable plans. 

Tariffs alone are not enough

Despite the new, astonishingly high tariff levels, tariff revenue collected in 2025 through August only amounted to 3.5% of total government revenue in fiscal year 2025. 

Investment implications

It's hard to time bound debt concerns to 2026 with any degree of accuracy. However, we see several potential investment implications investors need to monitor in 2026 in order to understand whether the magnitude of the debt burden has begun to impact their portfolios.

1 
Pressure on the long end of sovereign yield curves around the world, 
including the U.S. 

The Federal Reserve Bank of Dallas found that for each percentage point increase in debt to GDP, long-term yields rise by three basis points (0.03%). 

Don’t misunderstand the nature of the problem: This doesn't necessarily mean we think the 10-year Treasury yield will spike in 2026; the debt issue is the steeplechase, not the 100-meter dash. Plus, if we see lower growth or lower inflation, they could push against higher long-term rates. 

Here’s our takeaway: While forces could push long-term rates lower, we think debt levels could prevent rates from falling as much as they otherwise would. This has implications for the everyday consumer. Of particular concern — mortgage rates. If sovereign debt keeps the long end of the curve at the higher end, mortgage rates may not offer much relief, and fewer potential buyers may be able to enter the housing market. 

2
Select currency weakness

Currencies are measured against one another — for example, the price of the U.S. dollar in Japanese Yen or the price of Euros relative to the British pound. Given that debt concerns are global, we may find that other considerations — like the path of interest rates — matter more to currency investors in 2026. 

However, if debt troubles really begin to spiral for a particular region or country — France is facing acute pressure, for example, which could have Euro implications — we may find the related currency sinking in value relative to other, more stable currencies. 

3
Gold: What a run! 

After gold’s 53% year-to-date climb through October 31, 2025, everyone is a gold bug these days. But we are a bit leery. The current gold run didn't begin as debt concerns came to the fore in 2025, but a year before, as central banks around the world stepped up their efforts to diversify their U.S. dollar exposure in the wake of the Russian sanctions. 

Countries just don't want to find themselves easily shut out, financially, and gold offers a protection from that. The heavy central bank buying pushed gold prices higher, attracting institutional and retail investors to what is arguably a momentum trade, though investors can hide it under “debasement” concerns. 

This creates vulnerability: We could very well see gold sell off even as debt concerns linger. 

4
Bitcoin

While bitcoin hasn’t seen quite the run gold has seen, it's had better returns than the U.S. stock market nonetheless. After returning 122% in 2024 — with much of those gains coming post 2024 presidential election — bitcoin had a weak start to the year before rallying and returning 17.5% year-to-date though October 31. 

But here again it’s hard to argue bitcoin returns are 100% related to dollar-debasement concerns. Perhaps that is the case of the margin, but the real enthusiasm began with the prospect of President Trump's crypto-friendly administration. That has borne fruit, as regulation gains accrued to the crypto industry. 

It stands to reason this will continue for the next few years, but the difficulty in determining just what exactly crypto is worth — even for the more mainstream crypto currencies like bitcoin and stablecoin — creates vulnerabilities.   

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