The world has a debt problem
A large share of outstanding global debt was issued during a period of very low interest rates. This debt now needs to be refinanced gradually in an environment where capital has become significantly more expensive.
On 5 August 2026, the U.S. Treasury announced that it intends to keep its issuance profile at the long end of the yield curve broadly stable for the time being. This is being driven by major structural challenges: governments and companies continue to face substantial financing needs, while investors are becoming increasingly sensitive to duration, inflation and fiscal credibility.
$109 tn
$29 tn
78%
Outstanding government and corporate bonds worldwide.
Expected record bond issuance in 2026.
of issuance by OECD countries is used to refinance existing debt.
Source: OECD
The refinancing clock is ticking
Rising interest rates do not make debt more expensive immediately. What matters is when that debt needs to be refinanced. The interest rate shock of recent years therefore works its way through the maturity structure of governments and companies only gradually. Falling policy rates and, at the same time, rising effective financing costs can therefore coexist.
Figure 1: Same principal, higher bill: annual interest expense on $1bn of debt (in $m) when a bond issued in 2017 matures in 2026
The example in the Quality Pulse illustrates the impact clearly: if a $1bn bond with an original coupon of 2% is refinanced at 5%, annual interest costs increase by $30m. This capital is then no longer available for research and development, acquisitions or distributions.
Conclusion
The refinancing cycle will become an important differentiating factor in the coming years. What matters is not only the level of debt, but also whether companies can absorb higher capital costs through their own earnings power while retaining sufficient financial flexibility.
The true cost of debt is therefore reflected not only in the coupon, but also in the strategic decisions that a balance sheet still allows.
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