Debt interest payments now equivalent to
one-third of Social Security budget
- In 2022, US public debt rose 11.5% to $24.8
trillion1, as the US government accounted for more additional
borrowing than every other country combined
- Total US debt is almost as large as Japan, China, France, the
UK, Italy and Germany combined
- Globally, government debt rose 7.6% to a record $66.2 trillion
in 2022
- Higher interest rates meant government interest bills soared
20.9% globally, the fastest rate of increase since 1984
- Interest paid on sovereign debt reached a record $1.38
trillion in 2022 and will double in the next three years
- Janus Henderson is bullish on bonds – the world economy will
slow more than markets expect, and rates will peak sooner rather
than later
The United States public debt rose to $24.8 trillion in 2022, up
11.5% or $2.6 trillion year-on-year. This debt increase funded a
range of spending commitments by the Biden administration and
accounted for over half the increase in global government debt last
year, well ahead of the US’s two-fifths share of global GDP,
according to the Janus Henderson Sovereign Debt Index.
US debt interest payments rose by one-seventh during the year to
a record $404.1bn, equivalent to one third of the country’s social
security budget. US government bonds have a short maturity profile
relative to global bonds, which means large quantities of debt are
being rapidly refinanced at higher rates. Therefore, US debt
interest is likely to almost double in 2023 to $780bn and surge
higher to almost $1.2 trillion by 2025.
Across the globe, governments face a painful reckoning as record
debt and higher interest rates mean borrowing costs will double
over the next three years.
Globally, government interest bills jumped by almost over a
fifth in 2022 (+20.9% constant currency basis) to a record $1.38
trillion. This was the fastest increase since 1984 and reflected
both rising rates and the swelling stock of sovereign borrowing.
The effective interest rate, which includes older, cheaper
borrowing, rose to 2.2% in 2022, up by one-seventh,
year-on-year.
This cost continues to rise as new bonds are issued at higher
interest rates and older, cheaper debt is retired. The effective
interest rate in 2025 is set to be 3.8%, almost three-quarters more
than 2022’s level.
This will prove very expensive for governments. By 2025,
governments around the world will have to spend $2.80 trillion on
interest, more than double the 2022 level. This will cost an
additional 1.2% of GDP diverting resources from other forms of
public spending or requiring tax rises. The US is particularly
exposed on this measure.
Jim Cielinski, Global Head of Fixed Income at Janus Henderson
said: “The level of government debt and how much it costs to
service really matter to society, affecting decisions on taxation
and public spending and raising questions of generational fairness.
Since the Global Financial Crisis, governments have borrowed with
astonishing freedom. Near-zero interest rates and huge QE programs
by central banks have made such a large expansion in government
debt possible, but bondholders are now demanding higher returns to
compensate them for inflation and rising risks, and this is
creating a significant and rising burden for taxpayers. The
transition to more normal financial conditions is proving a painful
process.”
Jason England, portfolio manager, global bonds at Janus
Henderson said: “As we approach the midpoint of the year, the path
of inflation, interest rates, and the economy remain the central
forces in focus for bond investors. Each of these variables will
have an impact on future government debt levels, and with the fate
of longer-dated bonds resting on a yet-to-be-determined path for
rates, we believe tactical investors stand to benefit from an
active approach to fixed income investing.”
Notes to editors
Janus Henderson Group is a leading global active asset manager
dedicated to helping clients define and achieve superior financial
outcomes through differentiated insights, disciplined investments,
and world-class service.
As of December 31, 2022, Janus Henderson had approximately
US$287 billion in assets under management, more than 2,000
employees, and offices in 24 cities worldwide. Headquartered in
London, the company is listed on the NYSE and the ASX.
1 Gross debt, source EIU, March 2023
This press release is solely for the use of members of the
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