September 2025 – MarketsFN.com
The Bank for International Settlements (BIS) has published a detailed study on the evolution of global debt markets since the Great Financial Crisis (GFC). The analysis underscores a structural transformation: debt financing is increasingly shifting away from bank loans towards bond markets, reshaping the landscape of international finance.
A Global Shift Toward Bonds
Since the GFC of 2008–09, borrowers worldwide have relied less on banks and more on bond markets for capital. While loans remain the largest source of financing in many countries, the growth rate of bond markets has outpaced traditional lending. By early 2025, bonds accounted for roughly 40% of global credit to non-financial borrowers — surpassing 50% in countries like Brazil and the United States.
This marks a significant change in how governments, corporations, and financial institutions access liquidity. The BIS notes that bond markets are poised to overtake loans as the dominant funding channel globally.
Government Issuance Fuels Expansion
Governments have emerged as the largest bond market participants. Since 2020, they account for more than half of all outstanding global debt securities.
- Advanced economies (AEs) issue almost exclusively in their own currencies.
- Emerging market economies (EMEs) have made notable progress in overcoming “original sin” — the historical inability to borrow in their own currencies.
Government bonds outstanding rose from around 65% of global GDP in 2009 to over 80% by March 2025. This expansion was driven by crisis financing during both the GFC and the Covid-19 pandemic.
Private Sector: A Diverse Landscape
While governments drove growth, the private sector broadened market depth. Non-bank financial institutions (NBFIs), such as securitisation vehicles and mortgage-backed securities issuers, have played a leading role in advanced economies. In contrast, banks remain the dominant private issuers in Europe, while non-financial corporations are more prominent in EMEs.
This diversity has created deeper, more resilient markets, but also concentrated risks — particularly where foreign currency issuance is high.
Currency Dynamics: The US Dollar Dominates
One of the most critical findings is the continued dominance of the US dollar in global bond markets.
- 93% of all bonds are denominated in issuers’ domestic currencies.
- Yet in foreign currency issuance, the US dollar holds a 63% share, up 20 percentage points since 2007.
- The euro has declined to 25%, while sterling and yen have lost further ground.
The dollar’s role as the preferred financing and reserve currency reinforces its central position in global markets, though the range of issuing currencies has expanded to 75, including the renminbi (CNY).
Risk Transfer: From Borrowers to Investors
The BIS warns that the shift to bond financing has transferred risks from borrowers to investors. While governments and corporations reduce their exposure to currency and maturity mismatches, investors bear greater duration risk (sensitivity to interest rates) and currency risk.
Episodes of currency depreciation or rapid rate hikes can trigger sharp mark-to-market losses, leading to forced selling and heightened volatility — even in countries with limited foreign currency debt exposure.
Key Implications
- Governments are firmly entrenched as the largest borrowers, making sovereign debt markets crucial for global stability.
- Private sector diversity deepens liquidity, but raises monitoring challenges, particularly regarding NBFI and corporate hedging practices.
- The US dollar’s dominance is stronger than ever, even as other currencies gain ground.
- Systemic risks persist — not from lack of access, but from mismatches on investor balance sheets and dependence on global financial conditions.
Conclusion
The BIS study provides a clear message: bond markets are now the backbone of global debt finance. While this evolution reduces vulnerabilities for borrowers, it amplifies potential risks for investors and global markets. Effective monitoring, transparency in hedging practices, and prudent risk management are essential to ensure that bond-driven finance remains a stabilising force rather than a source of volatility.
📖 Full BIS paper: International finance through the lens of BIS statistics: bond markets, domestic and international (Sept 2025)
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