Lack of interest in public debt? Its role as a safe haven asset is weakened

For more than half a century, public debt has functioned as the backbone of global finance. A kind of unwritten law holds that sovereign bonds, especially those issued by advanced economies such as The United States, Germany or Japan are the asset closest to “risk-free”.

This is where institutional money takes refuge when curves hit the economy. It was that paper signed by central banks that served as collateral for billions in derivatives, loans and complex structures. And yet, in 2025, all of this has been called into question.

There has been no real debt crisis. There is no stampede of investors wanting to get rid of their bonds. But there is a change in mentality. Small, for now, but loaded with meaning. Because for the first time in a long time, some strategy reports have begun to doubt its reliability as a safe haven asset.

In the case of the United States, this questioning has been especially visible. For several months, between the end of 2024 and the beginning of 2025, the Treasuries They stopped behaving like the “automatic insurance” of the system. At various stages, including the trade tensions of February and April, and the threat of a global slowdown in March, what was foreseeable would have been a fall in yields and a rise in price. But just the opposite happened.

This has also been clearly seen in Europe. During the greatest moments of political tension in France and Germany, the main European security bonds did not act as a full refuge either. Spreads moved erratically and some institutional investors took refuge in cash or very short-term bills, avoiding even top-rated debt.

Even Japan, which for years has sustained a nearly immobile debt market thanks to massive intervention by the Bank of Japan (BoJ), has not been spared either. The mere expectation that the BoJ would reduce its purchases caused sharp movements in long-term bonds.

Less faith, more debt

The background context explains part of this distrust. Global public debt now exceeds $300 trillion, according to the Institute of International Finance, and many advanced economies They allocate between 10% and 20% of their budget solely to interest payments. In such an environment, the almost automatic faith in sovereign debt, as a safe asset, as a refuge, as unquestionable collateral; begins to erode.

And yet, this incipient distrust coexists with a demand that remains extraordinarily strong. In September, debt issues in euros, dollars and pounds reached a record of more than 208,000 million eurosaccording to Bloomberg, with orders that multiplied the offer by 4.66 times, one of the highest levels recorded.

So contradiction? Not quite. What is occurring is not a rejection of bonds as an asset class, but a transformation in their structural role within the system. Trust in States as sole guarantors of stability is beginning to fade, while the market seeks new ways to protect itself.

Obsolete bonds?

Until now, if a large institution wanted to obtain financing or secure a derivative operation, it provided public debt. This debt, being liquid and backed by the fiscal power of a State, met the requirements demanded by regulators and the banking system. But that balance has begun to shift.

In the last two years, contracts where real assets are used as collateral have grown significantly. Gold, for example, has doubled its participation as collateral in OTC (over-the-counter) operations, according to data collected by the International Swaps and Derivatives Association.

In emerging markets, some entities have begun to use strategic raw materials such as stored petroleum or industrial metals to guarantee bilateral financing. Even in developed economies, infrastructure funds and vehicles linked to renewable energy have gained prominence as a basis for private emissions.

Some analysts propose an even more radical hypothesis. Bonds, as we know them, were designed to finance wars, empires and sustained expansion cycles. In a world with lower growth, population aging and the multiplication of implicit liabilities, its historical function could be running out.

Others argue that bonds will not disappear, but they will share space with new collateral. In fact, the tokenization of physical assets driven by technological advances is opening the door to a hybrid financial architecture. In this environment, a 10-year bond can coexist with tokenized gold or contracts on wind farms as support in institutional operations.

What if bonds appreciate just when they lose their protection function?

Here comes the striking thing. Because while some point out the exhaustion of the model based on public debt, others see, paradoxically, an opportunity. So far in 2025, the Bloomberg Global Aggregate index, which groups global fixed income, has risen 7%. If the year closed at those levels, it would be its best performance since 2020.

For now, the reality is ambivalent. Large investment houses continue to include public debt in their portfolios. Central banks continue to use sovereign bonds as monetary policy instruments. And regulators still consider them the standard of quality. And at the same time, investors are looking for new formulas to protect themselves not only against market risk, but also against institutional, geopolitical and structural risk.