Where is this frenzy leading to in which large mostly, but not only, investors are “unloading” long-term government bonds, mostly U.S., but also other countries with strong economies, and turning to gold at the same time?

The atmosphere of war and growing geopolitical turmoil in more and more parts of the world is clearly a source of investor insecurity and a need to turn to a safer haven. But it is not enough.

Because, quite simply, until recently, U.S. Treasury bonds and the dollar were precisely the “island of safety” to which they would turn, as they did to gold, in the event of either an increase in geopolitical risk or adverse developments regarding the outlook for the international economy.

Stocks

Today, however, the “flight to safety” picture for US Treasuries is striking. For the first time since 1996, according to Barron’s, a weekly publication of Dow Jones & Company, and the investment firm Crescat Capital, global central bank gold holdings have surpassed those of U.S. Treasuries: 27% in gold and 23% in dollars. In other words, central banks prefer gold as the safest investment rather than the government bond of the world’s strongest economy and safest reserve currency. The launch of the US 30-year at 5% signifies fear for US fiscal stability and an apparent move away from dollar dependence.

Meanwhile, the gold price is breaking record after record, setting consecutive all-time highs, reaching $3,659/oz on September 7 and looking even higher. Goldman Sachs and JP Morgan predict it will reach $4,000/oz in mid-2026.

Aside from the US, however, yields on 20-yearJapanese bonds also reached their highest level since 1999 earlier this month, while UK 30-year yields reached 1998 levels. Even German 30-years hit a 14-year high.

In the whirlwind, French government bonds are also in the whirlwind, with yields similar to those in 2011, at the height of the euro crisis. The French 10-year is at 3.57%, compared with Italy’s 3.67%, while Greece is borrowing at 3.50%.

The common denominator in the sell-off of government bonds is the growing concern among investors that major governments lack the capacity to contain the fiscal imbalances in their economies – primarily public debt and deficits. Moreover, of their inability to deal with persistent, resilient inflation and inexpensiveness, all against the backdrop of intensifying, expanding and prolonged international geopolitical instability.

Analysts at Deutsche Bank speak of a “slow but relentless vicious cycle”: higher yields increase the debt-servicing burden, while doubts about the possibility of deficit reduction push investors to demand an even higher risk premium.

Sufficient Fears

Fears of a global debt crisis may seem exaggerated, but they are only unsubstantiated. In the global financial crisis of 2008, governments were forced to borrow heavily to cope, straining their budgets. They repeated this in 2020-21 more extensively because of the pandemic crisis, which led to a sudden – albeit temporary – global recession. Total global debt (public and private) reached a record $324 trillion in the first quarter of 2025, according to the Institute of International Finance.

But the government part of that, according to the International Monetary Fund’s latest revised Fiscal Monitor, is expected to reach 95.1% of global GDP this year, topping $102 trillion in absolute terms, a 2.8% increase. With the prospect of moving towards 100% in the coming years.

The dark scenario, however, cites a risk of a sharp spike in global sovereign debt above 117% by 2027 “if revenues and economic output decline significantly compared to current projections due to higher tariffs and weakened growth prospects”. That is, the debt would reach its highest percentage of GDP since World War II.

Trump’s responsibilities

The economic pressures of US tariffs on various countries and the countermeasures being taken, with back and forth shocks in many cases and new threats from Trump, amid a slowdown in most economies and exhaustion of government budgets, are being “blamed” by analysts for the turmoil in the government bond market.

Further, the policy of weakening the dollar as a global reserve currency. According to former IMF chief economist and Harvard economics professor Kenneth Rogoff, “distrust in the safety of US bonds has also reinforced doubts about the dollar itself, creating a vicious cycle. As US debt soars, the dollar ceases to appear invulnerable, especially amid political uncertainty.”

This year’s first half has been the worst for the dollar since the Nixon-era in 1973. With Trump’s trade, economic and geopolitical choices responsible for this, causing huge uncertainty in the markets. Many investors have reconsidered their exposure to the dollar as the dominant currency of the global economy.

The dollar index – strength against six major currencies – has fallen more than 10% so far this year. “The dollar has become a punching bag of Trump’s erratic policies,” commented Francesco Pezole, a strategic currency analyst at ING. The data also belies Trump’s claims that the trade war would hurt other economies and strengthen the dollar against competing currencies. In the end, the euro has strengthened by 13% against the dollar.

Also among the aggravating factors, Trump’s out-of-the-box interventionist tactics towards the Federal Reserve (Fed), urgently calling for a rate cut to revive the economy, but provoking a backlash from investors. Former Treasury Secretary under Biden and Fed Chairwoman Janet Yellen complained that “the consequences are likely to be catastrophic”. She likened Trump’s moves to those of Germany in the 1920s and more recently Argentina and Turkey, warning of coming chaos: “Politically manipulated central banks bring higher inflation, unstable growth and weakened currencies.”

The French crisis

Obviously France’s crisis, economic and political, threatens both itself and Europe. The country’s economy remains resilient, but amid the chaos following the fall of the Bayreux government and social unrest, it is becoming increasingly difficult to halt its march towards full fiscal derailment.

The debt is galloping out of control, at 3.56 trillion euros. 118.1% of GDP, the 3rd largest in the Eurozone and heading for 126% next year. The deficit at 5.6%. Former Commissioner Pierre Moscovici, now president of the Court of Auditors, accused Macron of adding 1 trillion in debt during his term of office.

The talk of going to the IMF lacks basis, but the only way to keep the country in touch with the markets is tough austerity measures. But the National Assembly has voted down the 43.8 billion Bairu package of measures, while citizens are rejecting them, and in the streets.

As no realistic fiscal way out emerges, French borrowing will become more difficult. And more expensive. France, of course, still has market credibility, long debt maturities, and in the background there are ECB and ESM to help, but it is still in the risk zone. Its borrowing costs are higher than Greece’s and almost similar to Italy’s.

Interest payments in France will reach €67bn this year, up from €59bn in 2024, and are projected to exceed €100bn by 2029. The unstoppable rise in borrowing costs is constantly forcing bigger spending cuts, which only in their announcement trigger a political crisis.

To stop this vicious cycle, the State Council for Economic Analysis estimates that the country needs to achieve a long-term primary surplus, before interest payments, of 1% of GDP. Mostly from spending cuts, as taxes as a percentage of GDP are already the highest in the E.U. But France has only managed to achieve a primary surplus once in the last 30 years.

The crisis in France is sparking concerns about contagion of economic uncertainty in the Eurozone, as the turmoil could be transmitted through financial channels, putting pressure on European yields and even banks.

Britain

At the same time, the sovereign debt and deficit crisis has also knocked on the door of Britain. Its economy is deteriorating rapidly, with forecasts pointing to a massive 58 billion euro budget deficit this year, while debt has climbed to 103.9% of GDP ($3.7 trillion) and long-term government bonds have taken off.

And it is estimated that if restrictive measures are not taken in time, debt will soar further. A group of economists have already warned, ahead of the new budget, that Prime Minister Keith Starmer and Finance Minister Rachel Reeves are already warning that they are leading the economy full steam ahead down the 1976, Callahan-era road to the IMF. An exaggerated warning, but the behaviour of investors who are selling off long-term British bonds, pushing yields to the highest levels of the 21st century, is a real fact.

The “Dutch shock”

The European bond market has another big challenge ahead of it. On 1 January 2026, the transition of 36 Dutch funds managing €1.8 trillion in assets to the country’s new pension system, currently the strongest in the eurozone, begins. The aim is to adapt to demographic pressures, but also to new labour market conditions.

What is the issue? Changing the hedging rules. Pensions will move from the model of defined guaranteed pension benefits to that of defined contributions, in which the insured bears the investment risk. This offers greater flexibility and personalised pension monitoring, but in practice the member’s earnings depend on investment returns rather than a predetermined benefit.

This is expected to lead to a massive reduction in positions in long-term swaps. The Netherlands holds over 50% of pension savings in the Eurozone, with around €300 billion invested in European bonds.

The new system will radically change the investment footprint of the funds. They will no longer need 30-50 year old government bonds to cover future liabilities. Instead, they will turn to higher-yielding investments such as stocks, says a Bloomberg analysis.

Rabobank estimates they will sell €127 billion of long-term government bonds, mostly German, French and Dutch, during the transition. This will lead to a rise in 30-year bond yields.

Otherwise, The Netherlands has debt at just 43.3% of GDP, 540 billion in absolute terms. It owes this to tough fiscal discipline.

The global debt map

Eight of the major economies have already crossed the 100% debt/GDP bar. The US government debt alone reached $36.2 trillion in 2024 (34.5% of the world’s), No. 1 on the world list in absolute terms and 122% of GDP. Last year alone, the US paid $900 billion in interest. Three-quarters ($27.2 trillion) is held domestically, while foreign investors hold the remaining quarter, worth $9.05 trillion.

Moody’s stripped the US of its top credit rating last May, citing fears that its ever-increasing debt and deficit would damage the country’s position as a prime destination for global capital.

That said, efforts have been made to reduce government spending, notably through Elon Musk’s controversial DOGE, without sufficient effect so far. Musk and Trump also clashed fiercely over the “radical tax and spending bill”, which is expected to inflate the debt, adding $3.4 trillion to the deficit over the next decade, according to the Congressional Budget Office. Which not only discourages, but panics investors in US bonds.

Of the other major economies, according to the IMF, Japan has the second-highest debt ratio, at 234.9% of GDP, equivalent to $10.2 trillion. It is only preceded by poor Sudan, at 252%, due to its long civil war. Japan, however, maintains its credit rating in the top tier, mainly because its debt is held mainly in yen, domestically, primarily by Japanese banks. However, its long-term sustainability is questionable. The country is in a new political crisis, the economy contracted in Q1 this year and its long-term borrowing costs have risen to a 20-year high.

Australia, on the other hand, with debt of just 50.9% of GDP, was among the countries whose multi-year bonds came under heavy pressure. The reason is that its debt ratio is rising rapidly, from just 10% in the 2000s, the fastest increase among developed countries, raising concerns about its long-term sustainability.

South Korea’s debt is considered manageable (54.5% of GDP), although it has doubled since 2005. Mexico’s also low debt (60.7% of GDP) is under pressure, as in addition to a two-year significant budget deficit it is currently suffering the effects of Trump’s tariffs.

Germany is “untainted” so far by a debt crisis (2.95 trillion, at 65.4% of GDP), as it dutifully adheres to European fiscal rules. Its economy, however, has been stagnant for two years. Industrial backwardness and a lack of productive investment, particularly in infrastructure, combined with a dramatic increase in defence spending are expected to increase the debt/GDP ratio.

Italy continues to accumulate debt, reaching $3.25 trillion at 137.3% of GDP, which is becoming increasingly difficult to sustain as growth stagnates. However, it is showing better performance on other economic fronts, as well as political stability. The Meloni government is projected to reduce the budget deficit from 4.3% of GDP last year to 2.8% in 2026, below the EU’s 3% threshold.

BRICS

In a low debt position Russia at 21.4% of GDP, but rising due to falling fuel revenues and rising defence spending due to the cost of the war in Ukraine. Even Turkey, at 26.7% of GDP, but with much of its debt in foreign currency, making it vulnerable to the currency instability and high inflation that plague it.

In India with debt of 80.4% of GDP, at 3.2 trillion, the Modi government plans to reduce it to 50% by 2031 through much higher economic growth rates. Brazil’s debt (92% of GDP) is expected to rise further due to social spending.

China, with debt currently 96.3% of GDP at 16.4 trillion and its economy in slowdown, is a particularly critical case. Beijing is moving ahead with plans to increase long-term debt from $370 billion to $2.1 trillion, with the aim of stimulating growth to bring about a reduction in overall debt. This is, however, a high-risk strategy. It has already led in one year to an increase in debt of 8 points (up from 88.3% last year). China’s budget deficits are expected to rise sharply this year to 8.6% of GDP, up from 7.3% last year.

Greek defenses

The stability of Greek bond prices suggests market confidence in the economy’s leaps forward in recent years, its prudent fiscal policy and the stability of its respective ratios, at a time when it is outperforming Europe. According to the commission’s spring forecasts, Greek debt will fall to 146.6% this year and 140.6% in 2026, from 153.6% last year.

So the current risks are limited. Greek systemic banks’ exposure to French bonds is low. Greece, despite its high debt, is currently borrowing cheaper than France, as it has been operating for 7 years within a fiscal discipline program, with a stable political environment. It is running a significant surplus in its budget, excluding interest payments. Thus, investors remain calm, yields on 10-year Greek government bonds remain at roughly the same level (3.3%-3.4%), and so does the General Index on the H.A.

The country is expected to continue to run a fiscal surplus in 2026 and to reduce its debt/GDP ratio. Furthermore, growth is expected to continue above the European average, inflation is expected to fall, disposable income is expected to rise amid significantly lower unemployment, and the cost of borrowing for businesses and households is expected to fall – relatively speaking – as well. Persistence in fiscal stability and the promotion of structural reforms will help to further shield the country against external risks.

Similarities and differences

The main similarity between the cases of today’s France and Greece of the past decade is the very high public debt, which is constantly fed and increased by new high budget deficits and interest, in an environment of weak economic growth, so that the debt/GDP ratio is further inflated. And then there is the political aspect, with governments finding it difficult to adopt and implement unpalatable measures.

On the differences, that when Greece was facing a debt crisis, there was no support mechanism to bolster it and it had lost access to markets. It was thus forced into three harsh memorandum austerity programs to secure the necessary borrowing and avoid default. This is considered impossible to happen in the second largest economy in the euro area. In the unthinkable event that France loses the confidence of the markets, spreads will soar across Europe. It will be like a nuclear bomb hitting Paris and its devastating effects will spread throughout the Eurozone.