According to a recent analysis, global sovereign debt should rise by 9.5 percent to a record $71.6 trillion in 2022; moreover, new borrowing should stay high.
According to Janus Henderson’s second annual Sovereign Debt Index, the United States, Japan, and China are likely to lead a 9.5 percent growth in global government debt. The great majority of nations should boost borrowing. Global government debt increased 7.8% to $65.4 trillion in 2021, as every country evaluated increased borrowing. Still, debt payment expenses fell to a historic low of $1.01 trillion; representing an effective interest rate of just 1.6 percent.
On the other hand, debt servicing expenses should grow dramatically in 2022; they should rise by about 14.5 percent to $1.16 trillion on a constant-currency basis. The United Kingdom will be hit most by increasing interest rates, rising inflation on large amounts of U.K. index-linked debt, and the expenses of unwinding the Bank of England’s quantitative easing program.
Germany has already pledged to increase defense expenditure to more than 2% of GDP; it marked a significant policy shift in the aftermath of Russia’s invasion of Ukraine; moreover, it contributed 100 billion euros ($110 billion) to a fund for its armed forces.
Investing Opportunities
During the first few years of the epidemic, central banks lowered interest rates to unprecedented lows to aid weak economies. Monetary policy convergence became a topic.
However, as central banks in the United States, the United Kingdom, Europe, Canada, and Australia look to tighten policy strings to contain inflation, Janus Henderson noted that divergence is now emerging as a key theme as China continues to try to stimulate the economy with a more accommodative policy stance. Payne noted that this discrepancy presents chances for investors in short-term bonds that are less vulnerable to market circumstances, citing two areas in particular.
