Government debt levels among G7 economies are under increased scrutiny, with the United States and Japan at the center of investor concerns. Moody's downgraded the U.S. last month, and a sharp bond sell-off in April has heightened market anxiety. President Donald Trump's recent tax and spending bill is projected to add roughly $3.3 trillion to U.S. debt by 2034, according to the Committee for a Responsible Federal Budget. The U.S. deficit is currently near 6.5% of GDP. JP Morgan CEO Jamie Dimon has warned of a potential 'crack in the bond market' due to overspending, while Treasury Secretary Scott Bessent has stated the country will not default. Investors are watching whether authorities can keep 10-year Treasury yields from rising much above 4.5%. Japan's public debt is more than twice the size of its economy, the highest among developed nations. Weak demand for longer-dated government bonds has led to record-high yields, with 30-year borrowing costs jumping 60 basis points over the last three months. Policymakers are considering trimming super-long bond sales following poor auction results. In Europe, the UK and France remain under pressure. The UK’s debt is near 100% of GDP, and the government is preparing for a multi-year spending review. France's risk premium over Germany has eased to around 66 basis points, but the country has not improved its debt position since the COVID-19 crisis. Italy's budget deficit dropped to 3.4% of output in 2024 from 7.2% in 2023 and is forecast to fall to 2.9% in 2026. Major investment funds, including Caisse de dépôt et placement du Québec, are reducing exposure to U.S. assets and increasing investments in European markets. Neuberger Berman's European private equity allocation has risen to 65% this year. Factors driving this shift include high U.S. asset valuations, political unpredictability, escalating debt, and the impact of recent U.S. tariff policies such as Trump's 'liberation day' tariffs. The S&P 500 is up 2% year-to-date, compared to a 9% increase in the European Stoxx 600, while the U.S. dollar has fallen 9% since the start of the year. Germany has recently introduced a €1 trillion investment package focused on infrastructure and defense, further increasing interest in European assets. The OECD has forecast global growth to fall below 3%, the lowest since the COVID-19 pandemic, citing uncertainty from tariffs and debt burdens. Investors are responding to these developments by shifting capital allocations and monitoring fiscal and monetary policy changes in major economies.