For institutional investors in the UK

Global government debt soared in 2020 amid fight against COVID

22 Apr 2021
3 minute watch

The inaugural Janus Henderson Sovereign Debt Index is a long-term study into trends in government indebtedness around the world, including the investment opportunities this provides and the risks it presents. Global Bonds Portfolio Manager Bethany Payne provides an overview of the study’s findings and implications.

  Key takeaways:

  • Global government debt jumped by over one-sixth (17.4%) in 2020, rising by US$9.3 trillion to a record US$62.5 trillion.
  • The increase was equivalent to one-seventh (14.8%) of global gross domestic product (GDP).
  • In the US, government debt has increased almost twice as fast as the rest of the world since 1995, rising US$2.8 trillion in 2020 to a record US$19.6 trillion amid the fight against COVID‑19.
Video transcript Expand

Bethany Payne: The Sovereign Debt Index is the first in a long-term study into trends in government indebtedness around the world, the investment opportunities this provides and the risk it presents. It measures the extent of which 50 of the world’s developed economies are financing themselves with borrowing and how affordable and sustainable that borrowing is and comparing and contrasting trends around the world.

Our report aims to help readers better understand the world of fixed income investments. When we first began researching historic trends in government debt in 2019, we had no idea what would happen in 2020 and how different our world would look in 2021. In this report, we can see that the world’s governments took on eight years’ worth of borrowing in 2020 to fight the global pandemic, increasing their debts by a sixth.

Some countries have taken on more debt than others to meet the challenges of the year. Comparing to the size of the economy, the biggest borrower was the UK, with a deficit worth one-fifth of its GDP, while Sweden and Switzerland are among those who borrowed the least. Governments finance the deficits by issuing bonds to investors, which can be bought and sold on financial markets. The steady decline in interest rates over the last 25 years has driven significant returns for bond investors, with a global government bond index generating a total return of 354 percent, in US dollar terms, nearly five times the rate of inflation over the same period.

One way or another, everyone has a stake in the bond markets. Without the bond markets, modern economies simply couldn’t function. Pension funds, the banking system, mortgages and saving rates all depend on the bond markets. The bond markets are a huge machine for judging the credit worthiness and economic performance of each country. They determine how much the government must borrow. They’re not only important for bond investors, but the interest rates set on the bond markets affect the value of every asset from homes to stock markets. Investors have enjoyed such superb returns from bonds in recent years, but interest rates are now on their way up, and that presents risks. Central banks will work to keep rates low for now, but stronger economies tend to be bad news for bond prices.

Thank you for listening.

 

 

Unless otherwise stated all data is sourced by Janus Henderson Investors as of 31 December 2020.

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.

 

Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

 

The information in this article does not qualify as an investment recommendation.

 

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22 Apr 2021
3 minute watch