Brussels (Brussels Morning) Debt of the largest economies blows up amid the coronavirus crisis as countries are borrowing to cushion the negative effects, Bloomberg reports today, Tuesday.
The G7 and emerging economies are facing record debt in at least a decade, with expected debt rollover this year approximately 50% higher compared to 2020.
While the crisis debt bill stands at some US$ 13 trillion, countries can count on the support of central banks and investors. Policymakers will likely keep borrowing costs low as they are facing protracted economic challenges caused by the pandemic, while bonds remain popular among investors due to uncertainty brought on by the crisis.
Gregory Perdon, co-chief investment officer at Arbuthnot Latham private bank based in the City of London, points out that “government debt ratios have exploded, but I believe that the short-term worrying over a rising debt is fruitless.” He notes that debt, if not abused, “is one of the most successful tool for growing wealth.”
The US is facing the biggest refinancing needs this year as debt of about US$ 7.7 trillion is coming due, followed by Japan with 2.9 trillion, China with 577 billion, Italy with 433 billion, France with 348 billion and Germany with 325 billion. Germany’s tab has increased from US$ 201 billion in 2020 to 325 billion this year, while China’s has increased from 345 billion last year to 577 billion in 2021.
Predictions and expectations
Bond yields are expected to go up, with economists who took part in Bloomberg’s survey expecting yield on 10-year bonds to reach 1.24% by the final quarter of the year.
The Jefferies Group financial services company expects the bond buying of central banks in Europe will help to create a supply shortfall of US$ 164 billion.
Steven Major, global head of fixed income research at HSBC Holdings investment bank points out that rates and debt levels are linked, stressing that “most of the developed world cannot afford higher interest rates.”
