Average government borrowing costs across the Group of Seven have climbed to their highest since mid-2008, locking in higher refinancing costs on a debt stock that the Institute of International Finance now puts above $365 trillion. The benchmark US 10-year Treasury yield has risen to its highest since 2007, while the 30-year yield sits near a two-decade peak.
"Debt accumulation has slowed, but the cost of carrying what is already outstanding has not," said an IIF economist, who noted that the improvement in global debt ratios reflects inflation lifting nominal GDP rather than any reduction in borrowing.
The IIF's Global Debt Monitor, published Wednesday, shows global debt rose by more than $10 trillion in the first half of 2026 to a record above $365 trillion. That increase is less than half the $21 trillion added in the same period a year earlier, as higher interest rates, rising debt-servicing costs, surging energy prices and the conflict with Iran weighed on new borrowing. Governments and non-financial corporates accounted for most of the increase, with both sectors hitting new highs.
The headline ratio looks better than the underlying position. Global debt stands at about 310 percent of GDP, roughly 25 percentage points below its early-2021 peak — a decline the IIF attributes largely to inflation inflating nominal GDP. If price growth and nominal output slow, that improvement reverses without a single dollar of debt being repaid.
Interest now costs more than AI, defense and clean energy combined
Advanced economies paid more than $3.3 trillion in interest on internationally traded government bonds over the past year, nearly 85 percent above prior levels. That single line item exceeds estimated global spending on artificial intelligence of $2.6 trillion, on defense of $3.1 trillion and on clean energy of $2.3 trillion — combined, those three categories total $8 trillion, but the interest bill alone is larger than any one of them and larger than the AI and clean-energy budgets put together.
The composition of the debt matters as much as the total. Emerging markets drove the first-half increase, adding $6.5 trillion to push their aggregate above $110 trillion, led by China. Excluding China, emerging and developing economies added about $1.7 trillion to reach a record $38 trillion. Emerging market sovereign Eurobond issuance is running at a record pace, led by Mexico, Saudi Arabia, Poland and Turkey, while a softer dollar and continued carry trade supported demand for local-currency assets. Those same issuers face a record amount of debt maturing in 2026, above $3.5 trillion.
The last time G7 average borrowing costs were this high, in mid-2008, the 10-year Treasury yield was about to collapse as the financial crisis forced the Federal Reserve to cut rates to zero. The difference now is the direction of travel: policy rates remain elevated, and roughly 45 percent of OECD sovereign debt is set to mature by 2027, according to OECD data. Debt maturing between 2025 and 2027 carries an average yield below 2 percent, against a projected average 10-year rate of around 3.6 percent in 2025 — a gap that mechanically raises interest bills as old bonds roll into new ones.
The line between rate risk and credit risk is thinning
For holders of long-dated sovereign bonds, the distinction between interest-rate risk and credit risk is narrowing. A bond whose coupon is fixed but whose issuer's fiscal trajectory is deteriorating behaves less like a rate instrument and more like a credit instrument, and the IIF flagged the shift as warranting continued attention.
The scale of the burden varies sharply across the OECD. Mexico devotes 10.9 percent of government spending to net interest, narrowly ahead of the United States at 10.6 percent, according to OECD data. Italy's 7.1 percent is roughly five times Germany's 1.4 percent. The US government's annual net interest bill now exceeds $1.2 trillion, larger than the annual economic output of most countries.
There is a counterweight. The IIF said there is little evidence so far that AI-related borrowing has crowded out US Treasuries or emerging-market issuers, though growing long-dated corporate issuance could eventually add to upward pressure on long-term Treasury yields. US non-financial corporate debt reached $24 trillion, with private credit loans now accounting for more than 5 percent of that total, up from roughly 1 percent in 2014.
The practical consequence is a fiscal arithmetic problem with no fast fix. Every basis point of additional yield on the 10-year Treasury raises the cost of refinancing the maturing share of a $365 trillion global debt stock, and the proceeds go to bondholders rather than to infrastructure, defense or energy transition. Watch the next round of G7 sovereign auctions and the 2027 maturity wall: if long-end yields hold at current levels, the interest line in developed-economy budgets keeps rising even as new borrowing slows.
This article is for informational purposes only and does not constitute investment advice.
