Rising interest rates have significantly increased the costs for governments to service their debts, with interest payments in both Canada and the U.S. now approximately double what they were five years ago.

As of 2025, government debt in advanced economies has escalated from 103.6% of GDP in 2019 to an estimated 110.1%, with projections suggesting it could reach 113.3% by 2030, according to the International Monetary Fund.

This trend is accompanied by a steady rise in long-term interest rates, particularly the benchmark 10-year government bond rates in Canada, the U.S., and the UK, marking the end of the low-rate environment that characterized the 2010s.

There are growing concerns that the increasing burden of interest rates may hinder economic growth and potentially lead to financial crises, especially in the U.S.

The global surge in government debt carries serious implications for investors as borrowing levels rise and interest rates continue to climb.

While other advanced economies face similar challenges, Canada is perceived to have relatively solid fiscal health compared to the U.S., France, and Japan, which are grappling with large deficits.

Currently, 10-year U.S. yields hover around 4.4%, but economists warn that if they rise to between 5.5% and 6%, it could trigger a crisis of confidence regarding the government's debt management.

Governments are expected to sustain high borrowing levels due to urgent needs such as military spending, aging populations, and addressing housing shortages, with Canada facing a $2-trillion investment requirement over the next five years.

Higher interest rates are likely to exert downward pressure on stock prices as investors seek more attractive returns in higher-yielding bonds.

The potential end of this high-debt cycle could be influenced by bond market reactions, particularly amid rising fears of a U.S. fiscal crisis linked to policies that further escalate national debt, such as Donald Trump's proposed spending plan.

In Canada, the burden of interest payments is nearly equivalent to healthcare spending, while in the U.S., interest payments are projected to exceed national defense spending for the year 2025.