Stock market "honey," bond market "arsenic"? Military and AI spending in various countries surges, pushing global debt to a record $348 trillion

Military industry and AI are pushing fiscal expansion to the forefront, and the market is beginning to reprice "growth" and "supply shocks." On February 25, the Institute of International Finance (IIF) reported that global debt increased by USD 28.8 trillion to USD 348 trillion last year, reaching a record high, with the largest increase since the COVID-19 pandemic. The IIF pointed out that the driving force is not businesses or households, but rather the government ramping up national security and related investments, with technology investments such as AI also playing a role. The debt-to-GDP ratio has declined for the fifth consecutive year to about 308%, but the IIF emphasized that this decline "is entirely due to the lighter burden on the private sector," while the government debt ratio continues to rise. For the stock market, fiscal expansion is more like "honey": military orders and AI capital expenditures easily strengthen growth and profit expectations, but for the bond market, it is closer to "poison"—larger government bond issuances and refinancing needs raise term premiums. Gordon Shannon, a fund manager at TwentyFour Asset Management, bluntly stated: "Everyone is focused on corporate bond issuance for AI financing, but what really drives supply is the government." Supply pressures have already been reflected in interest rates. The Financial Times reported that sovereign bond issuance is at a high level, combined with multiple central banks reducing bond purchases post-pandemic, leading to rising borrowing costs: the 10-year yields in the U.S. and the U.K. hover around 4%, while Germany's "safest benchmark in the Eurozone" has risen from negative yields a few years ago to over 2%. Long-term interest rates are rising faster than short-term rates, making the yield curve steeper, which means that the duration risk of bonds is harder to "avoid." The IIF warned that fiscal expansion driven by military spending, if combined with lower interest rates and looser financial regulations, could further push up debt levels. The organization estimates that Europe, amid geopolitical tensions and the potential return of former President Trump to the White House, could see its debt-to-GDP ratio rise by more than 18 percentage points by 2035 due to increased defense spending. Trump has also called for NATO European members to raise military spending to 5% of GDP and has pledged that U.S. defense spending will increase by about USD 500 billion to USD 1.5 trillion by 2027. The IIF also specifically named Brazil, Mexico, Russia, and other major emerging economies facing rising government debt pressures. Risk Warning and Disclaimer The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk