This article kicks off a short commentary in three pieces on debt in general, rising bond yields and possible investment opportunities. Before we focus on the more pressing issues of rising yields and the question what to do, let’s first describe the macro background, because it is important:

 In recent years, the world has witnessed an alarming surge in global debt levels, with governments and corporations accumulating trillions of dollars in liabilities. This concerning trend, coupled with central banks resorting to extensive money printing as a solution, has raised significant concerns about the stability of the global financial system.

The spectre of government debt crises, akin to the debt crises of the past, like the Greek or Italian crises, looms large in the minds of global investors. The Greek crisis serves as a stark reminder of the devastating consequences of unsustainable debt levels. Greek might have been manageable, but if larger countries get into the same situation, the consequences might be dire. As governments continue to accumulate debt, the risk of similar crises emerging in other regions cannot be ignored. Central banks may be compelled to provide liquidity and support to stabilize financial markets in the event of such crises, further highlighting the need for investments that can weather economic storms.

To understand the magnitude of the global debt bubble, consider the statistics: By the end of 2020, global debt reached an astonishing $281 trillion, equivalent to 355% of the global GDP. Governments borrowed extensively to stimulate economies, and corporations leveraged their balance sheets to pursue growth opportunities. While these actions were often necessary in response to crises, they have left the world in a precarious financial situation.

In response to the mounting debt crisis, central banks worldwide have resorted to unconventional monetary policies, most notably quantitative easing and low-interest rates. To counteract the economic repercussions of the COVID-19 pandemic, these central banks have significantly increased their balance sheets by digitally creating money. While these measures may have prevented a global financial catastrophe, they have also brought unintended consequences, such as inflationary pressures.

The amount of global debt has evolved dramatically over the past 11 months, raising profound concerns about the stability of the global economy. Despite efforts to restrain lending and rising interest rates acting as a deterrent, global debt has surged by an astounding $10 trillion in the first half of this year alone. Such an exponential increase in debt raises serious questions about the long-term sustainability of the global financial system.

The debt-to-GDP ratio on a global scale is on an alarming trajectory, now nearing a staggering 337%, with debt growing at an unsustainable pace, significantly outpacing economic growth.

A staggering 80% of the world's new debt is being generated by four countries—namely, the United States, United Kingdom, Japan, and France. Of particular concern is the United States, where the removal of the debt ceiling until 2025 has facilitated a rapid escalation in debt levels. Within a mere 11 months, U.S. debt has surged from $30 trillion to over $33 trillion, equating to an additional $3.11 trillion or approximately $100,000 per American citizen.

Unfunded liabilities, encompassing commitments such as Social Security and Medicare, have witnessed a harrowing increase of 14.79% within the past year alone. These unfunded obligations now stand at a staggering six times the national debt. This concerning development is further compounded by factors such as an aging population and escalating inflation.

Interest on U.S. debt has now exceeded the $1 trillion mark, with expectations of further increases as interest rates rise. It is anticipated that this could soon reach the alarming threshold of $2 trillion. This situation is particularly troubling as it accounts for half of the United States' total tax receipts, raising serious questions about the country's financial stability.

The global debt crisis has unmistakably crossed the historically recognized point of no return, typically indicated by a debt-to-GDP ratio of 77%. The present ratio, standing at an alarming 337%, signifies an irreversible course toward financial instability.

Addressing the global debt crisis presents a formidable challenge. While accelerating GDP growth through technological advancements is one conceivable solution, it is fraught with uncertainty.

See part 2 for a discussion on rising government bond yields.