Rising Debt Levels and Interest Costs: Governments worldwide are experiencing the highest debt servicing costs since 2007. The Organisation for Economic Co-operation and Development (OECD) reported that in 2024, debt servicing costs accounted for 3.3% of GDP across its 38 member countries, up from 2.4% in 2021. In the United States, interest payments reached 4.7% of GDP in 2024, prompting measures such as cuts to federal programs.
Elevated Global Debt: Global debt of governments and corporations surpassed $100 trillion in 2024, according to the OECD. This substantial debt burden, coupled with rising interest costs, is forcing borrowers to make challenging decisions and prioritize productive investments.
Inverted Yield Curve: An inverted yield curve, where short-term bonds yield higher interest rates than long-term bonds, has historically been a predictor of economic recessions. The current inversion has raised concerns about a potential economic downturn.
Political Uncertainty: In the United States, political brinkmanship, particularly surrounding debt ceiling debates, is undermining the perceived safety of U.S. Treasuries. Such political challenges threaten the nation’s fiscal credibility and could impact its credit rating. Reuters
These factors collectively contribute to a complex and uncertain environment in the bond market, prompting investors to exercise caution and closely monitor developments.