Structural Risks Mount: Analysts Warn Global Debt and Refinancing Threats Set the Stage for a Market Crash

After years of a sustained bull market in US equities, structural risks in the market are accelerating. Satyajit Das, a columnist for the American financial website MarketWatch, recently issued a rare and stark warning, arguing that the major conditions required for a global financial market crash are now almost entirely in place—only a final trigger event is missing. He contends that four vulnerabilities—high valuations, high debt, refinancing pressure, and deep interconnectedness of the financial system—are intertwined, and once any single link breaks, it could trigger a cascading systemic risk.

Das’s warning is not based on historical coincidences tied to any particular month, but rather on a comprehensive assessment of accumulated imbalances in the global financial system. He points out that since 2000, asset price gains have far outpaced the growth in underlying cash flows. Real estate and equity valuations are elevated, and declining credit quality means more debt is required to drive the same level of economic activity. Total global debt currently stands at approximately $348 trillion (roughly NT$1.1 quadrillion), equivalent to 308% of global economic output. A decade ago, that figure was around $210 trillion. This data comes from the Institute of International Finance’s (IIF) Global Debt Monitor published in February this year, which also showed that global debt increased by nearly $29 trillion in 2025 alone. However, because economic growth and inflation diluted the ratio, debt as a share of output actually declined for the fifth consecutive year. By contrast, the debt ratio in emerging markets moved in the opposite direction, surpassing a record high of 235%.

The expansion of government debt is particularly pronounced. Japan’s government debt stands at 252% of economic output, the United States at 127%, and the United Kingdom at 106%—up 116%, 71%, and 69% respectively since 2000. Beyond on-balance-sheet government debt, countries also carry massive unfunded liabilities in areas such as healthcare and pensions, which are not reflected in official statistics. The International Monetary Fund’s (IMF) Fiscal Monitor released in April further noted that global public debt approached 94% of output in 2025 and is projected to hit 100% by 2029. While Japan’s debt dynamics have improved due to inflation and economic growth, sovereign bond yields have already climbed to historic highs and could spill over to other countries. By comparison, the IMF estimates that Taiwan’s general government debt is only about 28% of GDP—on the lower end among advanced and major emerging economies—meaning fiscal conditions themselves are not the source of this wave of risk. However, the repricing of global interest rates will still transmit through the valuation of overseas assets held by financial institutions and through exchange rate channels.

Private-sector leverage is equally concerning. Das singles out tech giants including Alphabet, Microsoft, Amazon, Meta, and Oracle, whose combined off-balance-sheet financing has reached $1.65 trillion (approximately NT$52.3 trillion), exceeding the $1.35 trillion in debt disclosed on their balance sheets. This figure originates from a Nikkei Asia analysis published in July, which estimated that the off-balance-sheet obligations of these five companies have ballooned roughly eightfold over four years, now equivalent to 122% of their on-balance-sheet debt. The obligations stem primarily from data center leases, GPU purchase contracts, and special purpose vehicles. Circular transactions—such as certain chipmakers financing customer purchases and data centers monetizing future capacity commitments—depend heavily on the artificial intelligence sector achieving explosive revenue growth to sustain them. If AI revenue falls short of expectations, the ability to meet these obligations will develop massive cracks.

Refinancing pressure is another ticking time bomb. According to estimates, approximately $6.7 trillion (about NT$212.4 trillion) in debt must be refinanced before 2028, including $1.2 trillion in non-investment-grade corporate bonds and $330 billion in private credit loans. Refinancing costs could be far higher than during the previous low-interest-rate era. The US government also must roll over roughly one-third of its debt each year. When financing costs rise, cash shortfalls can further lead to bankruptcies and credit losses, creating a vicious cycle.

Laying out the various figures mentioned in the article side by side reveals where the risks are concentrated:

Das emphasizes that low funding costs previously served as a buffer for corporate and market funding gaps, but the era of low government bond yields is over. War, supply chain disruptions, and companies relocating production back to their home countries due to national security concerns could all push costs higher, keeping interest rates elevated for longer. In a “higher-for-longer” interest rate environment, companies will be forced to bear financing costs far above historical norms. This will not only trigger cash shortages and default risk, but also depress asset prices through reduced distributions and asset write-downs, exacerbating market volatility and triggering deleveraging effects.

The deep interconnectedness within the financial system is the critical pathway for risk contagion. US banks’ exposure to private credit funds ranges from approximately $410 billion to $540 billion, while combined US and European bank exposure to non-bank financial institutions totals about $4.5 trillion (approximately NT$142.6 trillion). Derivatives, securitization markets, and quantitative trading link different entities into a chain of risk. Passive investing and multi-strategy platforms rely on similar models, substantially reducing the effectiveness of diversification. If multiple market participants simultaneously liquidate their positions, these interconnected markets could amplify shocks—even relatively small position liquidations could trigger a chain reaction.

The transmission path from vulnerabilities to systemic risk can be outlined as follows:

Das further points out that the market’s shock-absorption mechanisms may be insufficient. Regulators have already relaxed capital requirements, potentially weakening the buffer available during a crisis. Whether governments and central banks can provide adequate support again is also constrained by budget deficits and high debt levels. Major central banks’ balance sheets currently total approximately $20 trillion (about NT$633.9 trillion), far above the $5 trillion seen in 2007. This means there are limits to how much support governments and central banks can provide when market risks escalate. He specifically cautions that the quantitative trading firms that now dominate the market are essentially “users” rather than “providers” of liquidity, and are highly prone to withdrawing capital when volatility spikes.

As for the proverbial last straw that could actually detonate the market, Das believes it is not tied to any specific month, but rather geopolitical events, natural disasters, debt defaults, or sudden shifts in financial markets—such as unexpected economic data or aggressive rate hikes.

Former Lehman Brothers trader Larry McDonald has issued a similar risk warning. He notes that in 1987, US stocks peaked in August with the Dow Jones Industrial Average hitting a record high, only to suffer its largest single-day percentage drop just two months later, plunging 22.6%. At the time, the 10-year Treasury yield had surged to 9.89%, while the UK 10-year gilt yield reached 10.12%. He argues that when bond yields rival equity returns and begin siphoning capital away from the stock market, a repeat of the 1987 crash scenario becomes possible. McDonald urges investors to heighten their vigilance: rising bond yields will drain capital from equities, with high-valuation tech stocks, high-capex sectors, traditional high-dividend defensive stocks, and cyclical stocks facing the most severe impact. Financial and banking sectors, commodities, and companies with stable earnings and abundant cash flow are relatively more resilient.

He cites the example of Alphabet’s 100-year sterling bond issued in February this year, which originally traded near par value but by summer had fallen to roughly 87% of face value, pushing the yield above 7%. Oracle’s long-dated corporate bonds have similarly seen yields climb to between 7% and 8%.

The “equity-like returns” he refers to are most clearly visible at current yield levels:

At a 7% yield, the “Rule of 72” suggests principal would double in roughly 9 years—precisely why bond returns are beginning to compete with equities and drain capital away from the stock market.

Jeffrey Gundlach, the renowned investor known as the “Bond King,” warns that even though bond yields have already reached their highest levels in nearly two decades, interest rates could still rise substantially against this backdrop, triggering severe market turbulence. If rates do rise sharply, the US economy will fall into recession and a wave of corporate bankruptcies will erupt.

Regarding the historical myth of October stock market crashes, a model developed by Harvard University economist Xavier Gabaix and his co-authors shows that the probability of a single-day US stock market decline matching the magnitude of the 1987 “Black Monday” crash in October is only 0.06%, while the probability of a decline matching the 1929 crash is just 0.3%. Gabaix points out that these minuscule probabilities apply equally to any given month—October is not particularly dangerous. This suggests that while the stock market can experience severe declines, whether it happens in October has no meaningful correlation with the magnitude of the drop itself. The Dow Jones Industrial Average plunged 12.8% on October 28, 1929, and an even more severe 22.6% on October 19, 1987. Both major crashes occurred in October, making the market particularly sensitive to October movements, but the statistical evidence does not support the significance of an “October curse.”

Synthesizing the views of Das, McDonald, and Gundlach, the core risk in the current market lies not in any particular month, but in structural imbalances accumulated over many years. The four factors of high valuations, high debt, refinancing pressure, and financial interconnectedness are compounding, while regulatory and monetary policy buffer room is constrained. Any unexpected trigger event could cause these risks to materialize simultaneously. For investors, the key indicators to watch include bond yield trends, transparency around tech giants’ off-balance-sheet financing, progress on the refinancing peak before 2028, and the pace of central bank balance sheet normalization.

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