A combination of increased debt levels, political and economic paralysis, and geopolitical risk has made the prospect of a global financial crisis all the more likely. The Organisation for Economic Co-operation and Development (OECD)’s latest Global Debt report, which was published on Wednesday, only confirms this concerning prognosis.

One point made in the report is that bond markets have remained remarkably stable in recent years, despite high debt levels and elevated yields. But this stability is only true at surface level, as there have been structural shifts taking place in the background which have weakened the shock absorption capacity of the $109 trillion sovereign and corporate bond markets.

The bond market has structurally changed from institutional bond holders to price-sensitive investors such as hedge funds, households, and foreign bond holders. States have also shifted from longer-term borrowing to shorter-term financing needs. All these factors suggest a higher exposure to shocks.

Headline figures from its report suggest that the OECD expects governments and corporations to borrow $29 trillion from markets this year, 17% more than in 2024. Much of this increase in borrowing is to refinance existing debt. In 2025 refinancing needs reached a record of $13.5 trillion, or 80% of gross borrowing. Outstanding sovereign bond debt in OECD countries also reached an all-time peak of $61 trillion in 2025, up from $55 trillion — though this was partly driven by depreciation in the value of the dollar. Interest rates remain high, and will likely continue to outweigh the impact of a fall in inflation on the aggregate debt-to-GDP ratio.

Corporate borrowing from markets also reached its highest level ever in real terms in 2025 at about $13.7 trillion, with an outstanding amount of $59.5 trillion. The investor base has changed here, too, after the 2008 regulatory overhaul, with open-ended investment funds, exchange-traded funds and principal trading firms all playing an increasingly important role.

The OECD ends with a stark warning not to take the resilience of recent debt markets for granted. The challenge is not only about managing high debt levels, but also for governments to create fiscal space for new investments into defence, digitalisation and infrastructure. All those demands put pressure on the system, and something will have to give. If European governments want to increase military spending without touching the rising costs of their welfare systems, this will have its costs. Sustainability will eventually be decided by the markets, and the question will then no longer be whether but when and how.

This is an edited version of an article which first appeared in the Eurointelligence newsletter.