Inflation is identified as the primary risk to global bond markets, according to Carmine Di Noia, the OECD's director of financial and enterprise affairs. This concern is amplified by surging energy prices, with oil prices up 16% this week, leading to higher government bond yields. If these elevated energy prices persist, the resulting higher bond yields will exacerbate pressures on debt markets, particularly given the substantial financing requirements and borrowing costs.
The OECD projects that governments and companies will borrow $29 trillion this year, a significant increase from over $25 trillion last year. A substantial portion of this borrowing, specifically a record $13.5 trillion in 2025, is for refinancing existing debt, accounting for 80% of gross borrowing in OECD countries. This high refinancing risk is particularly acute in emerging markets, where more than a third of the debt stock is set to mature within the next three years, and low-income countries, where over half of bonds mature within the same period.
The increase in interest rates since 2022 has begun to impact global debt markets. While shorter-term rates stabilized in OECD countries in 2025, 30-year yields significantly rose to a median of 4.1%, propelled by elevated real yields and concerns over fiscal trajectories. Continued high bond issuance and decreased demand for long-term assets have also contributed to higher long-term yields. The average estimated 10-year term premium in the OECD reached 0.84% by the end of 2025, marking the highest level in over a decade. In response to these higher long-term interest costs, sovereign and corporate borrowers have increasingly shifted their issuance to shorter maturities, which, while lowering immediate interest expenses, further heightens refinancing risks. The 10-year US Treasury yield recently surged to its highest since January 2025, and average G7 10-year yields reached their highest since mid-2008, underscoring the escalating borrowing costs for major economies.
The OECD notes that global government borrowing costs have hit their highest level since the 2008 financial crisis, with the 10-year U.S. Treasury yields surpassing 5%. The average ratio of public debt to GDP in advanced economies remains above 100% since the pandemic, contributing to the upward pressure on borrowing costs. This situation is further complicated by competing issuance from companies in the AI sector and a shift towards more short-term-focused investors in sovereign bonds.
