2026 Perspectives for the Public Sector

Dustin Ling Public Sector, Global David Jones Agency & Trust Global Debt Product Manager Michaela Carroll Public Sector, Global Zion Miller Public Sector, Global Tokenizing Public Sector Debt: Reimagining the Bond Lifecycle from Issuance to Custody A s governments and public sector institutions face growing demands to digitize andmodernize core systems and processes, public debt markets are proving to be an important environment for innovation. Transformation is underway across a range of areas, from initial issuance and distribution to trading and administration. Global debt is increasingly becoming digitized, revolutionizing the way in which issuers — particularly public sector issuers — access the capital markets. According to McKinsey & Company, over $10 billion in digital bonds have been issued over the last decade. Significant market growth is expected in the coming years; McKinsey’s base case is that the digital bond market will grow to around $300 billion by 2030. 1 At the same time, the total value of tokenized assets across the wider range of financial instruments is expected to reach nearly $2 trillion by the end of the decade, with bonds and exchange-traded notes expected to be one of the fastest asset classes to reach meaningful rates of adoption. 2 A recent survey of bond issuers, banks, and investors by the Official Monetary and Financial Institutions Forum (OMFIF) found 65% of respondents believe that bonds are the most likely asset class to become tokenized. Faster settlement and reduced counterparty risk are the top two benefits respondents anticipate as a result of the broader tokenization of financial assets. 3 With the public sector leading the way, there is an opportunity to work in lockstep with regulators and market participants in country to create the guardrails to leverage distributed ledger technology (DLT). A recent BIS report found that the tokenization of government bonds could improve market efficiency and drive financial innovation. 4 Tokenization and DLT could also enhance transparency while simultaneously mitigating operational complexities and costs associated with traditional issuances — frommanual data entry and reconciliation to regulatory reporting and settlement management. In short, these technologies could redefine how public debt is issued and managed. 1 https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformational-power-of-tokenizing-assets 2 https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformational-power-of-tokenizing-assets 3 https://www.omfif.org/da2024/ 4 https://www.bis.org/publ/bisbull107.pdf Citi Perspectives for the Public Sector 47