G7 economies struggle under debt pressure as US national debt touches $36.5T record

The US national debt has now hit a new all-time high of $36.5 trillion, based on official government numbers. The total includes $28.9 trillion owed to the public and $7.3 trillion tied up in intragovernmental holdings.

The debt is growing so fast that it’s adding around $1 trillion every 100 days, forcing Wall Street, global investors, and international financial watchdogs to start paying very close attention.

According to Reuters, this massive surge in liabilities has made the United States a central concern for the global bond market. After Moody’s downgraded America’s final AAA credit rating last month, investors started pulling back from government bonds.

The most recent scare came in April, when a wave of bond selling pushed US 10-year Treasury yields dangerously high, raising borrowing costs across the board.

Trump’s spending fuels long-term debt fears

At the heart of the growing problem is President Donald Trump’s new tax and spending policy, which the Committee for a Responsible Federal Budget projects will increase the national debt by another $3.3 trillion by 2034.

That’s on top of the current $36.5 trillion and has already drawn fire from major financial players. Jamie Dimon, the CEO of JP Morgan, warned of a “crack in the bond market,” blaming it on reckless overspending and poor fiscal management.

Even though Scott Bessent, the current Treasury Secretary, insisted the US will “never default,” global confidence is wearing thin. Investors still expect the government to try and cap 10-year yields below 4.5%, but the window to do that is shrinking.

Meanwhile, banks are watching for possible changes to supplementary leverage ratio rules. If regulators loosen restrictions, banks might jump back into the Treasury market with bigger positions, but for now, most are sitting tight.

G7 nations face rising debt pressure as Japan, UK, France, and Italy respond

The G7 group of major economies is also struggling with rising debt. Japan, long known for its massive liabilities, has its public debt at more than double the size of its economy.

In May, a 20-year bond auction collapsed with its worst result since 2012. Yields on 30-year bonds have surged by 60 basis points over the past three months, climbing even faster than US rates, according to data from Retuers.

Big buyers like life insurance firms and pension funds are also pulling out, and for the first time in 16 years, the Bank of Japan reduced its holdings of government bonds.

Prime Minister Shigeru Ishiba is under pressure to increase public spending and cut taxes, but Reuters says officials are now talking about scaling back long-term bond sales to calm things down.

In Britain, public debt is now hovering around 100% of GDP. The UK remains exposed to global bond shocks, and it’s currently the only G7 country with 30-year bond yields above 5%. Next week, Finance Minister Rachel Reeves is set to present a multi-year spending plan that could test investor nerves again.

Despite the government’s promise not to raise taxes, spending on defense and healthcare appears to be rising. Jane Foley, a strategist at Rabobank, said Reeves seems ready to spend even while vowing fiscal restraint. The IMF has already told her to keep borrowing low.

France, on the other hand, has seen some market calm after a chaotic year. The premium that investors demand to hold French bonds instead of German Bunds dropped from 90 basis points to about 66. Optimism over stronger European coordination, especially around defense, helped. But concerns remain.

Prime Minister Francois Bayrou is expected to announce a four-year debt reduction plan in July, but there’s already talk of resistance in parliament.

Lastly, Italy, usually the G7’s financial problem child, is seeing a rare moment of stability. Its budget deficit dropped to 3.4% of GDP in 2024, down from 7.2% the year before. Forecasts show that number dropping further to 2.9% by 2026, matching Germany’s. That’s a big change.

Italy’s stronger performance has narrowed the Italy/Germany 10-year bond yield spread to just under 100 basis points, the lowest since 2021. Investors are responding to both political calm and a change in European bond demand.

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