Government debt is now the biggest threat to your wealth

Government debt has become the most significant threat to individuals' wealth worldwide, according to recent warnings from bond markets. The International Monetary Fund (IMF) reports that global public debt has reached 93.9% of global GDP, with projections indicating it could surpass 100% by 2029, a situation not seen since the conclusion of World War II.

Interest payments on this debt have surged from 2% of world output to nearly 3% in just four years. Government bonds serve as the foundation for various assets, including mortgage rates, corporate loans, pension values, and share prices. Any disruption to the debt foundation could cause widespread instability.

The UK is particularly vulnerable, with yields on 30-year gilts reaching 6.036% in recent weeks, the highest level since January 1998. France's borrowing costs have also escalated, with a 10-year yield of 4.92%, the highest since 2002. Even Japan and China face rising borrowing costs, with their 30-year yields hitting record highs of 4.24% and 126.8% of GDP, respectively.

Chancellor John Healey's first budget, scheduled for October 28, faces considerable challenges due to high deficits, reliance on imported gas, and market skepticism. Similar predicaments exist in France, where annual interest costs are nearing €91 billion, and the UK and Japan, where 10-year yields have surged to 5.34% and 4.24%, respectively, marking the highest levels in decades.

The global situation is dire, with the US running a deficit of 7% to 8% of GDP without a clear plan to address it. The 10-year Treasury yield has jumped to 5.34%, its highest since 2002, following the sharpest quarterly increase since 1994. In past debt crises, central banks have intervened to stabilize markets by purchasing bonds.

However, with oil prices above $100 and inflation on the rise, the usual rescue mechanism is currently unavailable. This leaves bond investors unsure of their next move, and the consequences could extend beyond bond holders, affecting US stocks, property markets, and pension funds. The coming weeks will be crucial, with key events such as the UK budget and Federal Reserve rate decision coinciding on the same day, as well as upcoming bond auctions in the US, UK, and Japan.

To alleviate market pressure, governments must demonstrate fiscal discipline, but many have let borrowing run unchecked for too long, leaving them vulnerable to increased market demands.