NVDA gained a massive 197% since our AI first added it in November - is it time to sell? 🤔Read more

Global sovereign debt to rise almost 10% to new high in 2022 - Janus Henderson

Published 06/04/2022, 00:08
Updated 06/04/2022, 00:20
© Reuters. FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee
JHG
-
JANU
-

LONDON (Reuters) - Global government debt is set to rise 9.5% this year to a record $71.6 trillion, driven by the United States, Japan and China, asset management firm Janus Henderson said in a report on Wednesday.

Governments across the world have ramped up borrowing since the COVID-19 pandemic erupted two years ago, as they tried to shield their economies from the fallout.

That took global government debt to a record $65.4 trillion in 2021, compared to $52.2 trillion in January 2020, Janus Henderson said. China's debt rose the fastest and by the most in cash terms, up a fifth or by $650 billion last year, it added.

Among large, developed economies, Germany saw the biggest increase in percentage terms, with its debt rising by 15%, almost twice the average global pace.

According to Janus Henderson, government debt has tripled in the past two decades but a mitigating factor was low debt servicing costs.

With the effective interest rate on all the world's government debt slipping to 1.6% last year from 1.8% in 2020, debt servicing costs fell to $1.01 trillion.

And a strong global economic recovery meant the global debt-to-GDP ratio improved to 80.7% in 2021 from 87.5% in 2020, the report added.

Now though, debt costs may rise sharply, the asset management firm forecast, estimating the global interest burden to increase by almost 15% on a constant-currency basis to $1.16 trillion in 2022.

"The biggest impact is set to be felt in the UK thanks to rising interest rates, the impact of higher inflation on the large amount of UK index-linked debt, and the cost of unwinding the quantitative easing (QE) programme," the report said.

"As interest rates rise, there is a significant fiscal cost associated with unwinding QE. Central banks will crystallize losses on their bond holdings which have to be paid for by taxpayers."

The Bank of England has raised interest rates three times since December to 0.75%. Financial markets price in rates hitting 2% by the end of this year.

With inflation jumping and investors anticipating higher rates from major central banks, sovereign bond yields too have risen sharply.

© Reuters. FILE PHOTO: People wearing protective face masks wait at a bus stop with a display of the current national debt amid the coronavirus disease (COVID-19) pandemic in Washington, U.S. January 31, 2022.  REUTERS/Sarah Silbiger

U.S. 10-year Treasury yields, for instance, are up almost 100 basis points this year to 2.45%.

The Janus Henderson report said global government bond markets delivered a -1.9% total return in 2021, only the fourth time in 35 years to see a decline.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.