Inaugural Janus Henderson Sovereign Debt
Index reveals US government debt has increased almost twice as fast
as the rest of the world since 1995
- Total US government debt is worth $59,109 for
each citizen - only Japan and Singapore owe more per person.
- The cost of servicing US government debt in
2020 was $479 billion.
Global government debts jumped by over a sixth in 2020 to a
record $62.5 trillion
The world’s governments took on eight years’ worth of borrowing
in 2020 to fight the global pandemic, increasing their debts by
over a sixth (17.4%), according to the first edition of Janus
Henderson’s Sovereign Debt Index. As eight in ten countries in the
index slipped into recession, governments added $9.31 trillion to
their tab. This is equivalent to one seventh (14.8%) of the world’s
GDP2, a bigger slice than was needed to shore up the economy in the
aftermath of the global financial crisis. The world’s
government-debt tally ended the year at a record $62.5 trillion,
almost four times its 1995 total (+273%) and equivalent to $13,050
per person3.
The biggest economies took on the biggest debts in 2020, but
the UK had the largest budget deficit
Some countries have taken on more debt than others to meet the
challenges of the last year. In absolute terms the biggest
economies naturally borrowed most. The US, Japan and China alone
accounted for more than half of the world’s new government
borrowing in 2020.
Compared to the size of its economy, the biggest borrower was
the UK with a government budget deficit worth one fifth of its GDP,
but the US, Brazil, South Africa, Spain, Canada, Japan and
Singapore all ran deficits at least one eighth the size of their
economies too. Sweden and Switzerland are among those that have
borrowed the least, but none comes close to Taiwan whose debts
remained almost unchanged year-on-year relative to GDP as a robust
response to the outbreak enabled its economy to expand.
Even before the pandemic struck, the world’s governments ran
deficits in every one of the last 25 years as spending ran ahead of
tax collection. Happily, the world economy also grew substantially,
underpinning the debt edifice with a larger tax base, but the
increase in sovereign debt has nevertheless outstripped economic
growth by a fifth.
But this debt is cheap to finance
Despite sharply higher borrowing the burden of servicing all
this debt has not increased. In 2020, the world’s governments had
to pay just 2.0% for their loans4, compared to 7.6% in 1995. This
huge drop in rates means the world’s interest bill has only gone up
by just over a fifth despite debts almost four times higher.
Relative to GDP, the burden of interest has more than halved since
1995. No country in Janus Henderson’s index paid a higher interest
rate in 2020 than in 1995.
The steady fall in interest rates has driven dramatic returns
for bond investors
Governments finance their 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. Between 1995 and 2020 the
Global Government Bonds Index5 generated a total return of 308% in
USD terms, nearly five times the rate of inflation over the same
period.
Debts will jump again in 2021, adding $768 per person
2021 will see another big jump in government borrowing of around
$4 trillion, or $768 for each person, but compared to the size of
the world economy, debt levels have already peaked thanks to a
likely strong economic recovery.
Bethany Payne Global Bonds Portfolio Manager at Janus
Henderson said: “Debt often comes laden with moral baggage that
suggests it should be avoided, but a hair-shirted view
misunderstands the importance of government borrowing to support
the economy in bad times like 2020. Debts are at record levels, but
financing costs are so cheap that borrowing was the right call.
“Economic growth is the most painless way to overcome large
government borrowing. The recovery from Covid-19 is going to be
very uneven. Service-driven economies like the UK that had a tough
2020 should rebound faster than manufacturing-driven economies like
Germany that were less affected by the drop in global demand in
2020.
“Many countries have also focused their recent borrowing on
loans that will need to be repaid in relatively short order - for
these there is a real risk of being caught out having to refinance
large amounts of debt at uncomfortably higher rates in future.”
Jim Cielinski, Global Head of Fixed Income added: “The
bond markets are a huge machine for judging the creditworthiness
and economic performance of each country - they determine how much
a government must pay to borrow. They are not only important for
bond investors. The interest rates set in the bond markets affect
the value of every asset, from homes to stock markets.
“One way or another, everyone has a stake in the bond markets.
People can own bonds in their own right, or they can choose to own
them via fixed-income investment funds. Bonds help fund retirement
incomes for pension funds. Insurance companies use them to manage
risks and fund payouts. The banking system, mortgages and savings
rates all depend on the bond markets. Without the bond markets
modern economies simply could not function.
“Investors have enjoyed superb returns from bonds in recent
years, but interest rates are now on the way up again 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.”
Notes to editors
Janus Henderson Group (JHG) is a leading global active asset
manager 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 2020, Janus Henderson had approximately US$402
billion in assets under management, more than 2,000 employees, and
offices in 26 cities worldwide. Headquartered in London, the
company is listed on the New York Stock Exchange (NYSE) and the
Australian Securities Exchange (ASX).
Methodology
Janus Henderson sourced data on government debt, GDP, debt
interest payments and budget deficits from EIU, supplementing it
with data from individual country sources where necessary. To
enable full comparability between different data sets, all data is
in nominal USD (ie not adjusted for inflation), unless stated
otherwise. Bond market data was sourced from Bloomberg. Janus
Henderson sourced other data from national central banks, the OECD,
the IMF and World Bank. The countries in Janus Henderson’s index
together account for 88% of global GDP and two thirds of the
world’s population. Figures are not scaled up to take account of
parts of the world not in the sample.
________________________________ 1 If we take out the effect of
changing exchange rates, the increase was $8.1 trillion 2 14.8% of
GDP of countries in the index – these countries represent 88% of
global GDP 3 Countries in our index represent 67% of the world’s
population in 2020 4 Debt interest payments divided by average
public debt 5 Bloomberg: W0G0, Total return, USD,Hedged
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