Global Debt Risks: Rising Refinancing Costs & Foreign-Currency Exposures in 2025

The BIS Quarterly Review article “International finance through the lens of BIS statistics: bond markets, domestic and international” provides a comprehensive update on how bond markets have evolved globally since the Great Financial Crisis. Key structural shifts include a transition away from bank loans toward bond financing for non-financial borrowers, an increase in government bond issuance (especially in domestic currency), and a surge in private sector foreign currency borrowing. [1] This reshapes creditor risk profiles, as markets now depend more heavily on bond-holders, international investors, and non-bank financial institutions.

Data from BIS international banking statistics and global liquidity indicators through mid-2025 corroborate and deepen these findings. Cross-border bank credit climbed to $37 trillion in Q2 2025, driven predominantly by lending to financial sector counterparties—banks and NBFIs. Foreign currency credit in dollars, euros, and yen to non-bank, non-resident borrowers accelerated in YoY growth: 6%, 13%, and near 0% for dollars, euros, and yen, respectively. [2] These flows underline growing global liquidity risks and the increasing role of private sector foreign currency exposures.

Meanwhile, OECD “Global Debt Report 2025” sheds light on sovereign vs corporate debt burdens. Sovereign issuance in advanced economies is projected at a record $17 trillion in 2025, signaling persistent and increasing government fiscal needs. Corporate debt also resumed its upward trajectory, reaching $35 trillion by end-2024. [3][4] Refinancing risk is highlighted: high proportions of both sovereign and corporate bonds (about 40-42% and 38%, respectively) mature in the next 3 years, often into higher yield curves, raising servicing costs and debt sustainability challenges. [3]

Collectively, these trends point toward a financial environment with large, globally interconnected bond exposures; increased exposure of private sector borrowers in EMEs to foreign currency risk; and elevated rollover, currency, and duration risks across both sovereign and corporate sectors. For investment banks and policymakers, this suggests we should closely monitor credit spread sensitivity, foreign investor behavior, hedging practices, and currency mismatches—not just at the borrower level but across the financial system.

Strategic implications include: issuance strategies favoring longer maturities to mitigate refinancing risk; strengthening domestic currency markets, particularly in EMEs; enhancing transparency in hedging and in NBFI/NFC liabilities; and being alert to global monetary policy divergence which can quickly ripple through foreign currency borrowing costs and cross-border credit flows. Open questions remain around the degree of hedging completeness among non-bank issuers, the resilience of non-resident investor demand under stress, and the sustainability of government deficit financing under elevated rates and inflation pressures.