Government bonds — the assets investors rely on as the safest in the world — are becoming less secure as public debt rises and the financial system holding that debt becomes more fragile, Financial Times Chief Economics Commentator Martin Wolf warns.

Debt levels in many advanced economies are now at their highest point since World War II, and there is little reason to expect them to fall, Wolf stresses.

Aging populations, political resistance to fiscal restraint, military spending pressures, and the growing likelihood of economic shocks all point toward even larger debt loads ahead.

When those piles of debt grow, the presumption that government bonds are risk-free inevitably weakens.

What worries Wolf just as much is who now owns those bonds.

Over the past 15 years, the global financial system has shifted decisively away from traditional banks and toward a sprawling world of non-bank financial institutions.

According to the Bank for International Settlements, NBFI holdings of financial assets have jumped by 74 percentage points of global GDP since 2008, while banks’ share has grown by only 17 points.

Pension funds, insurers, money-market funds, hedge funds, and other non-bank players now sit at the center of global bond markets, often using complex funding structures and borrowed money to manage their portfolios.

The numbers show how dramatic that shift has been. Pension funds and insurance companies held government bonds worth 82% of global GDP in 2008; by 2023, that figure had surged to 135%.

Hedge funds and money-market funds also increased their holdings, from 13% to 18% of global GDP over the same period. Many of these institutions rely heavily on foreign-exchange swaps to manage cross-border investments — a strategy that exposes them to rollover and funding risks if markets seize up.

Wolf argues that the market’s sense of security is misplaced. While government bonds still carry implicit guarantees, rising debt loads and higher interest rates mean those assets cannot remain perfectly safe forever.

Complacency can give way to panic quickly, especially when investors are highly leveraged.

Hedge funds, for example, have been able to borrow at extraordinary levels, often through repos with zero haircuts, meaning they can take on enormous leverage without providing any cushion if prices fall. Roughly 70% of hedge-fund repos in U.S. dollars are structured this way, creating the potential for sudden funding squeezes if markets turn.

Wolf’s broader point is that although banks are safer and less central than before the 2008 crash, the risks never disappeared — they merely migrated to institutions with lighter regulation and less transparency. If these non-bank players buckle under stress, the shock will feed back into the banking system that finances them.

Wolf’s solution is straightforward: regulate similar risks in similar ways, require minimum haircuts, push more activities into central clearing, and improve transparency.

Above all, he argues, governments must restore confidence in their own finances. Because if sovereign debt ceases to be trusted, even the safest asset in the system can become the source of the next global shock.