Old Debt with a New Interest Rate... Who Will Pay the Bill?

I have written in several previous articles about the rising public debt, particularly in major economies, and I believed it would become one of the challenges the global economy would have to face in the coming years. Today, I believe the problem is beginning to shift into a more complex phase.

A large portion of the debt accumulated by major countries occurred when interest rates were extremely low. These debts mature sequentially and do not disappear upon maturity; rather, a significant portion is refinanced with new debt, but at a higher cost.

According to the Organisation for Economic Co-operation and Development (OECD), approximately 78 percent of the borrowing by member governments in 2026 will go toward refinancing existing debt. This means we are not merely discussing an increase in debt, but rather old debt returning at a new, higher cost.

We may not see the full consequences within one or two years. This is precisely what makes me more concerned. It is not necessarily a crisis that explodes overnight, but a problem that accumulates until debt servicing becomes a line item that competes with investment, education, health, infrastructure, and defense.

The problem does not stop at governments. As government bond yields rise, the cost of financing in the economy increases, putting pressure on asset valuations and bond portfolios, and making credit more expensive for businesses and individuals. If governments rely more heavily on local banks and financial institutions to finance their debt, this may come at the expense of financing the private sector and investment.

This refers to the state using fiscal and monetary policies and regulations to help ensure continuous demand for its bonds and lower its financing costs, which may indirectly force banks, financial institutions, and savers to bear part of the cost of managing the debt.

This is not a new idea. It has been used to varying degrees, particularly after World War II, when many countries emerged with very high debt levels. History also knows the harshest solution: debt restructuring or writing off part of it, although this scenario does not seem likely in major economies today.

Therefore, I do not believe the question is whether the United States, Japan, or Britain can issue more bonds.

The question is: For how long can they increase debt and refinance existing debt at a higher cost without the price showing up elsewhere in the economy?

Because debt does not disappear. Either growth eases its burden relative to the economy, or the taxpayer pays for it, or the saver bears it through inflation and low real returns, or the economy bears part of the cost through weaker investment and higher capital costs.

Thus, after having monitored the volume of debt in recent years, I now believe that the most important figure in the coming years will be the cost of servicing this debt.

This is why it is important to monitor the yields on 10-year and 30-year U.S. Treasury bonds. When the cost of long-term money changes, so does the way other assets are valued.

We may be facing a phase in which the concept of “Asset Allocation” itself changes. Just as investors used to ask: “What return am I targeting?” they will now have to ask with equal importance: “How do I preserve the real value of my assets?”

Asset allocation may no longer be merely about seeking the best return for a given risk, but rather a balance between achieving returns and preserving value.

Perhaps the upcoming debt crisis will not be a moment of collapse that we see on screens, but a gradual shift in the cost of money, in asset valuation, and in the way wealth and portfolios are distributed.