The global economy proved resilient to shocks, from tariffs to the war in Iran, aided by AI-driven investment and optimism that supported spending and accommodative financial conditions. Yet risks have intensified: the war’s inflationary scars could persist, and the AI boom’s durability is uncertain. These vulnerabilities add to existing financial imbalances and elevated public debt. Central banks confront a tighter fiscal–financial nexus as high public debt meets a larger role for leveraged non-banks in sovereign markets. This amplifies stress transmission, making swings in sovereign yields more frequent and abrupt, tightening financial conditions and unsettling inflation expectations. Elevated debt complicates monetary transmission and raises the likelihood of the need for interventions to address market dysfunction.