Debt Expansion and Capital Shift: A Deep Reconfiguration of the Global Financial Landscape

In the first quarter of 2026, the global debt volume soared by over 4.4 trillion US dollars, reaching a historical high of nearly 353 trillion US dollars, marking the fastest growth rate since mid-2025. The core driving force behind this debt explosion was the expansion of borrowing in the United States, while at the same time, foreign investors' allocation of assets towards US debt was gradually stagnant, and they instead increased their holdings of sovereign bonds from Japan and Europe. These two trends intertwined not only reflected the imbalance in the global debt structure but also indicated that the global financial system centered around the US dollar was undergoing structural relaxation.

The "black hole effect" of the US fiscal expansion was the core driver of this round of global debt surge. According to data from the International Financial Association (IIF), in the first quarter of 2026, the growth of global debt was mainly driven by the government borrowing of the United States, with its federal debt approaching 39 trillion US dollars, accounting for approximately 135% of GDP. For a long time, the United States has adhered to the "high spending, high deficit, high borrowing" model. After the pandemic, huge expenditures such as welfare subsidies, infrastructure investment, defense spending, and support for the AI industry have led to a continuous expansion of the fiscal gap. More seriously, the US debt has fallen into a vicious cycle of "borrowing - rising interest rates - expanding deficits - borrowing again", with annualized interest expenses reaching 1.23 trillion US dollars in the fiscal year 2026, even exceeding the defense budget. This excessive expansion has disrupted the global debt balance, pushing the global debt-to-GDP ratio to a stable high level of 305%, and systemic risks have continued to accumulate.

In sharp contrast to the "wild growth" of US debt, global capital is quietly initiating a "de-dollarization" rebalancing process. Since this year, foreign investors' enthusiasm for allocating assets to US debt has significantly cooled down, with net buying scale approaching stagnation, and they have turned their attention to Japanese and European sovereign bonds. Data shows that at the beginning of 2026, the inflow of funds from European and Japanese funds reached 104 billion US dollars, far exceeding 25 billion US dollars from the United States. China's holdings of US debt decreased from a peak of 1.3 trillion US dollars to 688.7 billion US dollars at the end of 2025, reaching a new low since 2008; Japan, as the largest overseas holder, also reduced its holdings of US debt by 47.7 billion US dollars in March. At the same time, the European Central Bank reduced the proportion of US dollars in its foreign exchange reserves from 83% to 78%, and the net purchase volume of gold and other diversified assets by global central banks continued to rise, making the trend of diversified allocation increasingly clear.

Behind the capital shift is the rational revaluation of the "credit cracks" and risk-return imbalance of US assets by the market. On the one hand, the sustainability of US debt is widely questioned, and the IIF clearly warned that its fiscal path is "unsustainable", and the long-term debt risk concerns have intensified. Coupled with the frequent use of financial sanctions by the United States and the intensification of uncertainty due to the escalation of geopolitical conflicts, the "safe-haven aura" of US assets has continued to fade. On the other hand, after Japan ended negative interest rates, the yield of Japanese bonds has risen, and the fiscal trajectory of European bonds is relatively stable, providing investors with low-risk alternative choices. Moreover, the volatility of US bond yields has increased, with the 30-year US bond yield breaking through 5.19%, and overseas investors have suffered heavy losses on their accounts, further accelerating the withdrawal of funds.

In the short term, the US bond market, with its huge volume and domestic funds' support, does not have the risk of liquidity collapse. But in the long term, the unsustainable nature of the US borrowing expansion and the trend of global capital diversification allocation are irreversible. Although the US hegemony will not end quickly, its "unipolar dominance" position will gradually weaken, and the evolution of the global currency and financial system towards a diversified pattern is an inevitable trend.

This global financial transformation triggered by the expansion of US debt has sounded the alarm for all countries: Over-reliance on a single currency asset and allowing debt to expand disorderly will eventually accumulate systemic risks. For global investors, reducing reliance on US assets, diversifying into Japanese and European bonds, gold and other diversified assets will become a long-term strategy. For the United States, if it fails to curb its fiscal ambitions and control the scale of its debt, it will eventually suffer from a credit collapse and a sharp increase in financing costs. This will also lead to a more profound reshaping of the global financial landscape.