Key Takeaway
Rising public debt does not automatically create a financial crisis, but it makes markets more sensitive when the investor base changes. In September 2026, the U.S. 10-year Treasury yield reached 5 percent while traditional long-term buyers such as pension funds were allocating more capital to higher-return assets. Leveraged investment funds have become more important intermediaries. They can improve trading in normal conditions, but rapid deleveraging can amplify stress. For Georgia, the central lesson is that debt sustainability depends not only on the debt ratio, but also on maturity, currency composition, investor diversification and domestic market depth.
Why the bond market is nervous
The Wall Street Journal’s 16 September 2026 report highlighted a structural shift in the U.S. Treasury market. Hedge funds held about $2 trillion of Treasuries at the start of the year, more than twice their holdings five years earlier, representing roughly 7 percent of the market, while pension funds and other long-horizon investors have reduced some of their traditional bond exposure.
This is occurring alongside heavy government issuance. The Congressional Budget Office projected a $1.9 trillion federal deficit for fiscal year 2026, equal to 5.8 percent of GDP, and debt held by the public at 101 percent of GDP. By the end of the first eleven months of the fiscal year, the deficit had reached about $2.0 trillion.
The issue is therefore not simply debt supply. It is who absorbs that supply and with what balance-sheet structure.
Leverage can turn small spreads into large positions
A major Treasury strategy exploits small price differences between cash bonds and futures. Because the spread is small, funds often use substantial borrowing to magnify returns. IMF analysis published in 2026 notes that cash Treasury positions in such trades can be funded with extremely high levels of repo borrowing.
In normal conditions, this arbitrage helps align prices and supports market liquidity. Under stress, however, higher funding costs, margin demands or volatility can force funds to reduce positions rapidly. If many investors unwind simultaneously, Treasury sales can amplify price declines and increase yields.
Why a 5 percent Treasury yield matters
U.S. Treasury data show the 10-year Treasury yield at 5.00 percent on 15 September 2026 and the 30-year yield at 5.36 percent. Higher yields compensate new investors but raise the cost of new and refinanced government debt.
Treasuries are also a benchmark for mortgages, corporate bonds and other long-term financing. When the return on government debt rises, private borrowers often need to offer higher returns as well. The effect therefore extends beyond the budget to the broader cost of capital.
Georgia is a different market, but the lesson still matters
Georgia’s scale and market structure are very different from those of the United States. Ministry of Finance data show total government debt of about GEL 35.91 billion at the end of August 2026, including GEL 23.00 billion of external government debt and GEL 12.90 billion of domestic government debt. According to calculations by BTU researchers, the external component represented about 64.1% of total government debt and the domestic component 35.9%. During August alone, the stock increased by about GEL 188.2 million, or 0.53%; this is a monthly movement and should not be interpreted as an annual trend.
The Ministry of Finance’s May 2026 investor presentation showed general government debt at 34.4 percent of GDP in 2025 and 34.3 percent in April 2026. The government debt management strategy treats a 40–45 percent range as sustainable and seeks to reduce foreign-currency exposure.
Domestic borrowing costs remain material. On 8 September 2026, the weighted average yield on a Treasury bond with ten years of remaining maturity was 9.014 percent. A six-month Treasury bill auction on 1 September cleared at a weighted average yield of 8.188 percent. These rates should not be compared mechanically with U.S. Treasury yields because currencies, inflation, monetary conditions, market size and credit risks differ.
The local weakness is market depth
The National Bank of Georgia states that the secondary market for Georgian government securities remains shallow and is not characterized by adequate liquidity. That is why the GEL yield curve relies significantly on primary-market auction data.
Georgia does not face the same leveraged Treasury-market structure as the United States. But a smaller and shallower market can still be sensitive to changes in demand from large investors or banks. Broadening the investor base and developing longer-term GEL funding can therefore improve resilience.
BTU Researchers’ Assessment
According to an assessment by BTU researchers, the key lesson for Georgia is that debt sustainability cannot be reduced to a single debt-to-GDP ratio. Resilience also requires a debt portfolio that limits foreign-currency exposure, refinancing concentration and dependence on a narrow investor base.
If global yields remain high for longer, external borrowing and Eurobond financing may become more expensive, while high local-currency rates can increase domestic debt-service costs. Debt management therefore becomes a question of balance across funding sources, maturities and currencies, not simply the absolute size of debt.
Conclusion
Market anxiety around public debt does not mean government bonds have ceased to be safe instruments, nor does high debt automatically imply crisis. The U.S. experience in 2026 shows that market structure matters: when issuance rises and more leveraged investors become key intermediaries, the mechanism of financing itself can amplify volatility.
For Georgia, the practical conclusion is straightforward. The debt level is only the first part of the assessment. Market depth, currency composition, maturity and investor diversity determine how strongly global financial stress can be transmitted into the local cost of funding.
Data and Main Sources
The Wall Street Journal – Hedge Funds Are Wild Card in the Turbulent Bond Market, 16 September 2026 – Source supplied by the user as the 16 September 2026 newspaper PDF
U.S. Department of the Treasury – Daily Treasury Par Yield Curve Rates – https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?field_tdr_date_value_month=202609&type=daily_treasury_yield_curve
Congressional Budget Office – The Budget and Economic Outlook: 2026 to 2036 – https://www.cbo.gov/publication/62105
Congressional Budget Office – Monthly Budget Review: August 2026 – https://www.cbo.gov/publication/61984
International Monetary Fund – Global Financial Stability Report, April 2026 – https://www.imf.org/en/publications/gfsr/issues/2026/04/14/global-financial-stability-report-april-2026
International Monetary Fund – Safeguarding the Treasury Market, March 2026 – https://www.imf.org/en/publications/fandd/issues/2026/03/safeguarding-the-treasury-market-jeremy-stein
Ministry of Finance of Georgia – Public Debt Statistics – https://www.mof.ge/en/page/public-debt-statistics
Ministry of Finance of Georgia – Georgia Investor Presentation, May 2026 – https://www.mof.ge/files/download/Georgia%20Investor%20Presentation%2019.05.2026.pdf/d5cd7b51-d5cb-4a2a-abd9-e3a4c70aaa17
Ministry of Finance of Georgia – Treasury Securities Auction Results, 8 September 2026 – https://mof.ge/en/n/auction_results/sakartvelos_finansta_saministros_sakhelmtsifo_fasiani_kaghaldebis_auktsionis_shedegebi86
National Bank of Georgia – GEL Yield Curve – https://nbg.gov.ge/en/page/government-yield-curve
This material is analytical and educational in nature. It does not constitute financial, investment, tax or legal advice. Consult an appropriate professional before making a specific decision.
Prepared by the academic team of Business and Technology University and the BTUAI Research Team, Tbilisi, Georgia.