US Government Debt Soars to $22.3 Trillion as Cost of Servicing This Borrowing Rises
April 06 2022 - 8:30AM
Business Wire
- In 2021, US government borrowed an extra $3,434 on behalf of
each citizen
- US government debt is now a third larger than its pre-pandemic
level, compared to an increase of just over one fifth for the rest
of the world
- Amid the growing US debt burden, the US economy performed very
strongly, expanding 9.0% in 2021, significantly faster than the
rise in borrowing for the year (6%)
As the second year of the pandemic passed, US government debt
increased 6% in 2021 to $22.3 trillion according to the second
annual Janus Henderson Sovereign Debt Index. The growth in US debt
is poised to continue as the cost of servicing this borrowing is
expected to reach record levels in 2023.
Globally, sovereign debt is expected to rise by 9.5% in 2022, up
by $6.2 trillion to a record $71.6 trillion. The increase will be
driven by the US, Japan and China in particular, though almost
every country is likely to borrow further.
2021 saw sovereign debt levels hit new records
Every country Janus Henderson examined saw borrowing rise in
2021. China’s debts rose fastest and by the most in cash terms, up
by a fifth, or $650 billion. Among large, developed economies,
Germany saw the biggest increase in percentage terms, with
borrowing rising by one seventh (+14.7%), almost twice the pace of
the global average.
Despite surging levels of borrowing, debt servicing costs
remained low. Last year, the effective interest rate on all the
world’s government debt was just 1.6%, down from 1.8% in 2020. This
brought the total cost of servicing the debt down to $1.01
trillion, compared to $1.07 trillion in 2020. The strong global
economic recovery meant the global debt / GDP ratio improved to
80.7% in 2021 from 87.5% in 2020 as the rebound in economic
activity outpaced the increase in borrowing.
2022 will see debt servicing costs significantly
increase
The global interest burden is set to rise by around one seventh
on a constant-currency basis (14.5%) to $1,160bn in 2022. The
biggest impact is set to be felt in the UK thanks to a rising
interest rates, the impact of higher inflation on the large amount
of UK index-linked debt, and the cost of unwinding the QE
programme. 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.
Bond market opportunities for investors
Janus Henderson sees asset allocation opportunities in
shorter-dated bonds as they are less susceptible to changing market
conditions. Janus Henderson believes markets are expecting more
interest rate hikes than are likely to materialize and this means
shorter-dated bonds will benefit if the tightening cycle ends
sooner.
Region
Value of Debt
(1/1/2022) in
Billions
YoY increase /
decrease
(constant
currency)
Debt to GDP
ratio
Yield on 10
year bond (16
March 2022)
United States
$22,283
6.0%
100%
2.17%
Jason England, portfolio manager, global bonds at Janus
Henderson said: “Bond markets around the world converged at the
onset of the pandemic as governments and central banks provided
significant levels of support to their economies in the face of
unprecedented uncertainty. However, as we move past two-year
lockdown anniversaries, a divergence is occurring. In the US, UK,
Europe, Canada and Australia, focus has shifted toward how to rein
in inflation through higher interest rates and steps towards
unwinding quantitative easing. At the same time, the Chinese
central bank is doing the opposite – stimulating the economy with
looser policy.
This divergence is a cue for more volatile markets and timely
opportunities for selective fixed income investors.”
The Janus Henderson Sovereign Debt Index tracks the borrowing of
governments around the world and identifies the investment
opportunities this presents.
Notes to editors
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dedicated to helping investors achieve long-term financial goals
through a broad range of investment solutions, including equities,
fixed income, quantitative equities, multi-asset and alternative
asset class strategies.
At 31 December 2021, Janus Henderson had approximately US$432
billion in assets under management, more than 2,000 employees, and
offices in 25 cities worldwide. Headquartered in London, the
company is listed on the New York Stock Exchange (NYSE) and the
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