Central banks are increasingly worried about global sovereign debt, with 37% of reserve managers identifying it as a primary concern, up from 14% last year. 

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According to the IIF, global government debt will hit a record $91.4tn this year.

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According to a UBS survey, nearly 75% of central banks indicated that ongoing inflation and increasing long-term yields are major concerns for the global economy.

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About 25% of those surveyed expect the US annual inflation rate to be between 3% and 4% by June next year, which is notably higher than the Federal Reserve's 2% target. As of May, US inflation stood at 3.3%, a significant drop from its peak of 9.1% in June 2022. Meanwhile, traders in the swaps markets are speculating that the Fed will begin lowering interest rates either in September or November.

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"There is still no political appetite to address the sustainability of public debt," said Castelli. "On one hand, monetary policy has been aimed at reducing inflation and tightening, but on the other hand, fiscal policy has remained lax, complicating efforts to achieve the inflation target."

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When questioned about the economic effects of the upcoming US presidential election, 75% of reserve managers predicted that the country would likely face higher public deficit levels under Donald Trump compared to President Joe Biden or another Democratic candidate.

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