Discover how bond markets operate, how global leaders such as Trump can unsettle them, and which nations carry the heaviest debt
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Sitting quietly at the heart of the global financial system, bond markets are often overlooked forces. It is here that confidence in governments is tested in real time, shaping spending decisions worldwide.
But what exactly are bonds? Put simply, a bond is an IOU – a promise to repay a loan on a certain date, with periodic interest payments along the way. Governments can only spend as much as they do on defence, public services and welfare by issuing bonds.
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They are often bought by financial institutions such as pension funds and insurance companies. Governments can also buy each other’s bonds.
When an investor buys a bond, they are lending money to the issuer until the bond matures. In return, most buyers will receive regular payments based on their interest rate. When it expires, the bond’s original value is repaid.
Every year, governments need to persuade investors – both at home and abroad – to buy large quantities of bonds. For countries such as the US, that normally happens routinely, assuming that they remain a ‘predictable and reliable steward of the world’s financial system’.
The prices of bonds quickly move depending on investor confidence – and that’s something that can easily falter depending on what global leaders, like US President Donald Trump, say and do.
For example, Trump’s incessant desire for large tax cuts, higher government spending, and sizable tariffs on imports has worried investors that a scenario could unfold in which government debt increases along with inflation. In this case, bond prices tend to fall, and yields – the return an investor gets from a bond – rise. In short, this makes borrowing more expensive for the US government. Such changes would result in higher borrowing costs across the US economy, from mortgages to business loans.
Trump is also no stranger to unpredictability. Sudden policy announcements, public attacks on institutions and threats of trade wars all make it harder for investors to predict future economic conditions. As such, when uncertainty rises, bond prices can swing sharply as investors reassess risk.
These market reactions are crucial, as government borrowing is now concentrated in a relatively small number of countries. With global debt at record levels, bond markets pay particular attention to the world’s biggest debt holders, where shifts in confidence can have cataclysmic consequences beyond borders.
So, which nations have the biggest debt?
1) US
The US comes out at number one, with a 34.5 per cent share of global debt totalling $38.27trillion. This translates to 125 per cent of the nation’s GDP. Foreign investors hold $9.05trillion – or a quarter – of the total US national debt. Japan holds the highest, followed by the United Kingdom and China.
Since 1960, US Congress has raised, suspended or changed the terms of the nation’s ‘debt ceiling’ 78 times, allowing the US to borrow more money than it originally set out to.
The deficit – defined as when the government spends more money than it collects – grew sharply during Trump’s first term, as well as in 2020 during the COVID-19 pandemic, when the government spent heavily while tax revenues dropped due to job losses. However, under former President Bill Clinton, there was a federal surplus, resulting from favourable economic conditions like the dot-com boom, as well as tax increases.
2) China
China has a 16.8 per cent share of global debt, amounting to $18.68trillion. This is equivalent to 96.3 per cent of the country’s GDP. Such debt has been attributed as the cause for many of China’s predicaments, such as sluggish consumption, declining investment, shrinking exports, declining income and deflation.
Local government debt has ballooned thanks to local authorities often borrowing to fund infrastructure and other projects. In many regions in China, local government debt is much larger than central government debt as a relative share of GDP.
In addition, much of China’s credit has flowed into investment – such as buildings and infrastructure – rather than household consumption, a pattern that sustained growth but also drove up debt without generating enough returns.
3) Japan
Japan’s debt – totalling 8.9 per cent of the world’s global debt – sits at $9.83trillion, a staggering 229.6 per cent of the nation’s GDP. The nation has run budget deficits for many years. When government spending consistently exceeds revenues, the gap is financed by issuing government bonds – increasing debt across time.
Another major contributor to Japan’s debt is its ageing population, which increases spending on healthcare, pensions and care services while shrinking the tax-paying workforce. Such a demographic trend drives up fiscal outlays and contributes to ongoing deficits.
4) UK
The UK comes in at number four, with a 3.7 per cent share of the world’s debt, totalling $4.10trillion. This represents 103.4 per cent of the nation’s GDP. The main reason for the UK’s high debt is that the government has routinely spent more than it has collected in tax revenue, year after year. Several major shocks forced the government to borrow large sums to support the economy, including the global financial crisis of 2008, the COVID-19 pandemic and the energy price crisis.
As well as this, the UK faces ongoing expenditure pressures, including an ageing population with rising pension and health costs. This contributes to spending commitments.
5) France
France is at number five, with a 3.5 per cent share of global debt amounting to $3.92trillion – representing 116.5 per cent of its GDP. The nation has spent more than its revenue since the 1970s, meaning it has had to borrow year after year tocover gaps.
France also has one of the largest welfare states in Europe, with high public spending on health, pensions, unemployment benefits and other social programmes. Maintaining these commitments requires ongoing borrowing when taxes don’t fully cover them.
