Global Debt Tops US$365 Trillion, Interest Now Costs More Than Defense

Global debt grew US$10 trillion in the first half of 2026 and now tops US$365 trillion, according to the Institute of International Finance (IIF), an association of financial institutions that tracks debt held by governments, companies, and households worldwide. The increase comes just as borrowing has gotten more expensive, with government bond yields in the United States, Japan, France, and the United Kingdom at their highest levels in more than a decade.

What explains the growth

High interest rates, expensive energy, weak growth, and heavy public spending explain the move. The combination is uncomfortable: with the economy barely growing, tax revenue doesn't keep up with spending; with interest rates high, every new bond issued to cover the deficit costs more than the one before it.

Rich countries have started living with large deficits and growing interest bills, something once associated with emerging economies. For many years, these governments financed themselves at very low rates and were able to pile up debt without the cost weighing on the budget. With bond yields at their highest in more than a decade, old debt is gradually being swapped for more expensive debt.

The interest bill

The size of the bill is striking: last year, advanced economies spent more than US$3.3 trillion on debt interest alone. For comparison, according to the figures cited in the survey:

• Global investment in artificial intelligence: about US$2.6 trillion.
• Global defense spending: US$3.1 trillion.
• Global investment in clean energy: US$2.3 trillion.

In other words, the money rich countries spent just on paying interest exceeded each of these three areas. Interest paid doesn't build roads, doesn't fund research, and doesn't reduce the debt: it's just the cost of carrying the stock that already exists.

What the OECD and the IMF say

The OECD and the IMF are calling for tighter control of spending. Both organizations worry that, without adjustment, the interest bill will keep crowding out other spending and leave governments with less room to respond to a future crisis.

Why this matters for investors

For investors, this matters because high debt can push up interest rates and move currencies, make corporate credit more expensive, and pressure stocks and other risk assets if the market starts doubting governments' ability to pay.

Interest rates

When a government needs to issue a lot of bonds, buyers can demand a higher yield to lend. Since government bonds serve as a benchmark for the rest of the economy, this tends to spread to credit for companies and households.

Currency

Perceptions of a country's public finances feed into the price of its currency. Distrust about the debt trajectory tends to weigh on the exchange rate, while higher interest rates can attract capital. The net effect depends on which force the market considers more important at any given moment.

Stocks and risk assets

More expensive credit shrinks the room companies have to invest and raises the rate used to discount future earnings in stock valuations. If distrust about governments' ability to pay grows, investors tend to demand more return for taking on risk.

What to watch

For traders, the IIF survey isn't a buy or sell signal for any asset. It's a backdrop: it's worth watching the government bond auctions in the countries mentioned, the yields on those bonds, and central bank remarks about the cost of debt. Sharp moves in these rates tend to show up in currencies and stock markets the same day.

Source: Traders Union.

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