40,000,000,000,000
A number that is generating headlines. In August, US government debt surpassed the USD 40 trillion mark for the first time, having more than doubled within a decade. As expected, this dynamic has also drawn significant attention across financial markets. While the absolute figure is undoubtedly concerning, it provides only limited insight into fiscal sustainability. What matters more is the relationship between debt, economic output, and the associated interest burden.
A more meaningful metric is government debt relative to GDP. At around 125%, this ratio is also at a very high level and, according to the IMF, is expected to rise above 140% by 2031. Compared with other advanced economies, however, such a debt ratio is by no means unprecedented and should not be equated directly with a debt crisis. At the same time, the US is not an ordinary borrower. The size and dynamism of the US economy, the dollar's status as the global reserve currency, and the world's deepest and most liquid capital market give the US substantial financing capacity. This special position makes high debt levels more sustainable, but at the same time increases their global significance, since US Treasuries serve as a key reference point for international financial markets and for the valuation of numerous financial assets.
Rising fiscal risks are already reflected, among other things, in higher yields on US Treasuries. Higher refinancing costs are making debt service more expensive, further adding to fiscal pressure. At the same time, rising rates are weighing on equity valuations, particularly in highly valued growth and technology segments.
For investors, this still does not suggest retreating from equity markets but rather calls for broader positioning. The second-quarter earnings season showed that profit growth is increasingly spreading beyond the previous AI market leaders. In a more challenging market environment, balanced positioning across regions, sectors, and investment styles is becoming increasingly important. The current market environment offers welcome opportunities to do so.
Enjoy the read.
Best regards,
Gzim Hasani, CEO
Bekim Laski, CFA, Chief Investment Officer
