A trend is emerging where capital is reducing holdings of US Treasury bonds in favor of more diversified asset allocation.

A report released on Wednesday by the International Financial Institute (IIF) reveals that global debt reached a historic high of nearly $353 trillion by the end of March. Concurrently, investors are showing signs of decreasing their holdings of US Treasury bonds and shifting towards a more diversified asset mix.

The IIF's quarterly Global Debt Monitor report indicated that since the beginning of the year, international market demand for Japanese and European government bonds has strengthened, while overall demand for US Treasuries has stabilized.

Emre Tiftik, Global Head of Markets and Policy at the IIF, stated, "This trend partly reflects the diverging debt trajectories of different countries, which is increasingly influencing investors' asset allocation decisions."

"Under current policies, the US debt-to-GDP ratio is projected to continue rising; the latest forecast from the Congressional Budget Office suggests its long-term fiscal outlook will deteriorate further."

The report noted that, by contrast, even with continued fiscal expansion in the Eurozone and Japan, the pace of increase in their debt ratios is expected to be more moderate.

However, supported by strong demand for AI-related bond issuance and substantial inflows of foreign capital, the US corporate bond market continues to experience robust growth.

**Sustained Increase in Debt Levels**

The IIF report stated that global debt increased by over $4.4 trillion in the first quarter, marking the largest quarterly rise since mid-2025 and representing the fifth consecutive quarter of sequential growth. A major driver of this increase has been substantial debt issuance by the United States.

Tiftik mentioned that the growth in US debt is primarily fueled by government borrowing.

He also pointed out that at the start of this year, the pace of debt accumulation among Chinese non-financial corporations accelerated significantly, predominantly involving state-owned enterprises. Their borrowing scale far exceeded the Chinese government's own debt issuance during the same period.

Outside the world's two largest economies, debt in developed markets saw a slight decline. Meanwhile, in emerging markets excluding China, debt levels rose moderately, reaching a new high of $36.8 trillion, driven by government borrowing.

In terms of key debt ratios, the global debt stock is equivalent to 305% of global GDP, a figure that has remained largely stable since 2023. However, the trends in debt ratios mirror the overall debt picture: a gradual decline in developed markets and a steady increase in emerging economies.

Data from the IIF shows that the economies with the most significant increases in their debt ratios during this period were Norway, Kuwait, China, Bahrain, and Saudi Arabia, with each seeing their debt-to-GDP ratio rise by over 30 percentage points.

The Institute predicts that, over the medium to long term, structural pressures—including population aging, increased defense spending, investments in energy security and transition, cybersecurity, and capital expenditures related to artificial intelligence—will continue to push debt levels higher for governments and corporations worldwide.