Global government bond issuance hits record high, driven mainly by defense and energy.

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Governments around the world are accelerating their borrowing from the markets—energy transition, national defense, and aging populations all require money, and interest rates are still on the rise.

According to the latest analysis from Bloomberg, in the first half of this year, the volume of global sovereign bond syndications reached $504 billion, setting a new record. This number even surpasses the first half of 2020—when governments around the world borrowed heavily to respond to the COVID lockdowns and urgently support their economies.

What is driving this bond issuance boom is the continuously climbing fiscal deficit. Jens Peter Sorensen, chief analyst at Danske Bank, points out directly: "The main driver of increased supply is increased public spending, which in turn leads to a greater financing demand." He specifically highlights three areas: military spending, infrastructure construction, and the transition to clean energy.

Meanwhile, the inflation shock triggered by the Middle East war has pushed global yields higher, and central bank policy paths in various countries are becoming increasingly unpredictable. The European Central Bank is expected to raise rates for the first time since 2023 this week, and the Federal Reserve is also anticipated to tighten monetary policy within the year.

Who's borrowing and how much

Italy has been the largest borrower in the sovereign syndication market for several consecutive years. It will maintain this position in 2026, raising almost 70 billion euros (about $81 billion) in the first half alone.

Germany's change is even more noteworthy. The country, once known for its "debt brake" and almost obsessive fiscal discipline, has completely rewritten its fiscal rules this year, investing heavily in defense and infrastructure, and raised 14 billion euros through three syndications in the first half of the year. The UK, Belgium, and Serbia have all completed the largest syndication deals in their respective histories. Australia and Mexico have also made it into the top ten issuers this year.

The EU is also relaxing restrictions: the EU has eased fiscal rules to allow member states to increase spending in defense and energy sectors.

Demand remains but investors want higher returns

Currently, there is still demand for government bonds in the market, especially for short-term bonds. But investors are asking for higher returns.

In May this year, the yield at auction on the US 30-year Treasury bond surpassed 5%—the first time since 2007. The UK's 15 billion pound (about $20.2 billion) long-term bond issued in April attracted record numbers of buyers—for the reason that the 10-year yield rose to the highest level since 2008.

Johnathan Owen, portfolio manager at TwentyFour Asset Management, commented: Governments are seizing the window of opportunity in the market. "They are making use of this window while the market is healthy and willing to buy," he said.

Maturities combined with early issuance—pressure remains in the second half

The surge in issuance is also being driven by a structural reason: bonds issued during the pandemic are maturing in large numbers.

Natixis analysis shows that in 2026, the refinancing scale for eurozone sovereign bonds will jump 26% year-on-year, far exceeding the overall 11% growth in syndication volume. Natixis rate strategist Theophile Legrand believes this shows the first half records "were mainly driven by refinancing due to maturity, not by locking in costs ahead of interest rate hikes."

However, the data for May showed a subtle shift. Legrand points out that the scale of refinancing due to maturity actually fell year-on-year in May, but syndication volume leapt from 32 billion euros to 45 billion euros, "suggesting there is at least a certain degree of opportunistic early issuance."

In May, Belgium, Spain, Austria, and Portugal all issued ahead of schedule, according to a June 3 report by ING strategists Benjamin Schroeder and others. Greece is raising 3 billion euros through a tapped issue for bonds maturing in 2036, with over 36 billion euros in orders. Sweden is issuing 2 billion euros in three-year bonds.

Harvey Bradley, Head of Global Rates at Insight Investment, summed it up succinctly: "There is still a large volume of eurozone sovereign bonds waiting to enter the market in the second half of the year."

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