Debt record and storm in the markets: Where is the world heading?

As global debt reaches record levels, markets are pricing in both artificial intelligence competition and diplomatic traffic. But the real question is: How sustainable is this picture?

The latest report from the Institute of International Finance (IIF) has laid bare the burden on the world economy: 365.5 trillion dollars. This figure points to a historic peak across a wide range, from public debt to the burden of non-financial corporations. So, who will finance this mountain of debt, and how? This is the markets' primary concern in recent weeks.

Diplomatic Stage: A Critical Week in New York

The 81st UN General Assembly is witnessing intense diplomatic efforts at the leadership level in New York. However, the image this year is different from the usual "messages of goodwill." There is talk of establishing a narrow-scope notification channel between the US and China to prevent a miscalculation stemming from artificial intelligence from turning into a military crisis. The Chinese side clearly states that the US must abandon its baseless allegations against technology companies.

Although positive messages regarding trade have emerged following the Trump-Xi summit, the lines between them are full of uncertainty. It was announced that the economic and trade teams of the two countries have reached a new joint arrangement; it was also emphasized that the artificial intelligence dialogue will continue. However, the scope of the arrangement remains unknown. Will there be concrete steps regarding tariffs and critical minerals? The disagreement over the Taiwan issue shows that the relationship remains fragile. In short, there are smiles at the table, but the ground is still slippery.

In the Middle East, there is talk of ending the blockade in the Strait of Hormuz through a gradual agreement. The oil market has already reacted to this news.

Oil and Bonds: Between Two Fires

Brent crude has exceeded the 108-dollar level due to concerns stemming from Hormuz. Record tanker charter rates signal that the cost chain will be pushed even higher. Markets are now grappling with two inflation channels simultaneously: strong domestic demand and rising energy costs.

In the US, the fact that preliminary September PMI data significantly exceeded expectations showed that economic activity remains strong. But this strength complicates the "soft landing" scenario that markets want to see. The fact that input costs have reached their highest level since October 2022 increases concerns that strong growth could re-fuel inflationary pressures. The result: The expectation that the Fed may continue its interest rate hikes is strengthening, the US 10-year bond yield is heading toward 5.20%, and valuation pressure on stocks is increasing.

The picture on the bond front is even more striking. In the US, the 30-year bond yield has reached its highest level since 2004 at 5.48%, and the five-year yield has exceeded 5%, reaching its highest level since 2007. This cannot be explained solely by Fed expectations. Strong economic activity, oil fueling inflation, high public spending, and the intense supply of bonds issued to the market to finance the 40 trillion dollars of US debt are all pushing yields up simultaneously. The fact that long-term yields are also peaking in Germany and Japan shows that investors are now demanding higher real returns to carry long-term debt. Even if the Fed pauses interest rate hikes, a quick return to old levels does not seem easy.

BIST-100: Fund Volatility and Fragile Balance

While the global picture is like this, things are even more complicated domestically. The BIST-100 index has lost nearly 3% of its value since the beginning of the week. However, what is more striking is that stocks outside the BIST-100 have experienced losses of up to 12% in the same period. This divergence reveals that the index is being kept afloat by a few large stocks, while the broad base is showing a much weaker outlook.

Technically, the 13,000-13,500 band was seen as an indecision range. It is noteworthy that the index has fallen below this band. It should not be forgotten that as long as it remains below this region, downside risks may remain at the forefront. The question is: Is this decline just the result of global winds, or is it a more structural fragility created by fund-based volatility within the country?

Turkey Front and Data Calendar

President Erdoğan spoke clearly regarding allegations of fund manipulation: There is no risk to the financial system or the Turkish economy, and those responsible will be held accountable before the law. While Vice President Cevdet Yılmaz continues domestic investment programs, Minister of Health Kemal Memişoğlu is in New York to address the UN General Assembly on behalf of Turkey.

Abroad, a loss of momentum is expected in US durable goods orders. Total orders had increased by 1.1% in July; this time, a 0.3% contraction is projected in the headline figure. However, it should be remembered that large and irregular orders such as aircraft can affect the headline. Therefore, orders excluding transportation and sub-items pointing to business investments will provide a clearer idea about the direction of economic activity.

The Michigan consumer sentiment index is also on the calendar. The initial reading showed that the index had fallen from 51.7 in August to 47.8. Will this decline change in the final data? Even more critical is whether inflation expectations will rise while consumer confidence weakens. In the last survey, the inflation expectation for 1 year ahead was 4.6%. If expectations rise while confidence falls, the Fed's squeeze between growth and price stability will deepen further.

The IMF's 2026 report reveals that the global economy has shown resilience to geopolitical shocks, but Middle East tensions and trade protectionism have weakened the medium-term outlook. The Central Bank of Mexico kept interest rates steady at 6.50%.

And Then What?

The debt record, the climb in bond yields, the course of oil, and the geopolitical chess... They all point in the same direction at the same time: Uncertainty. Markets are happy about strong data on one hand, and afraid that this strength will fuel inflation on the other. Positive messages are being given at the diplomacy table, but concrete steps are delayed. In the case of Turkey, the picture becomes even more complex when domestic fund volatility is added to global winds.

The real question is: How much can the world endure with this debt burden, these interest rate levels, and these geopolitical tensions? The answer will be determined by upcoming data and concrete decisions to come out of New York.