Governments of the world’s leading economies have more than US$7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.
Led by Japan’s US$3 trillion and the US’ US$2.8 trillion, the amount coming due for the G7 nations and Brazil, Russia, India and China is up from US$7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by the end of the year for at least seven of the countries, forecasts show.
“The weight of supply may be a concern,” Stuart Thomson, a money manager in Glasgow at Ignis Asset Management Ltd, which oversees US$121 billion, said in a Dec. 28 telephone interview. “Rather than the start of the year being the problem, it’s the middle part of the year that becomes the problem. That’s when we see the slowdown in the global economy having its biggest impact.”
The amount needing to be refinanced rises to more than US$8 trillion when interest payments are included. Coming after a year in which Standard & Poor’s cut the US’ rating to “AA+” from “AAA” and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.
“It is a big number and obviously because many governments are still in a deficit situation the debt continues to accumulate and that’s one of the biggest problems,” Elwin de Groot, an economist at Rabobank Nederland in Utrecht, Netherlands, part of the world’s biggest agricultural lender, said in an interview on Dec. 27.
Italy auctioned 7 billion euros (US$9.1 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted. With an economy sinking into its fourth recession since 2001, Italian Prime Minister Mario Monti’s government must refinance about US$428 billion of securities coming due this year, the third-most, with another US$70 billion in interest payments, data compiled by Bloomberg showed.
After Italy, France has the most amount of debt coming due, at US$367 billion, followed by Germany at US$285 billion. Canada has US$221 billion, while Brazil has US$169 billion, the UK has US$165 billion, China has US$121 billion and India US$57 billion. Russia has the least maturing, or US$13 billion.
The two biggest debtors, Japan and the US, have shown little trouble attracting demand.
Japan benefits by having a surplus in its current account, which is the broadest measure of trade and means that the nation doesn’t need to rely on foreign investors to finance its budget deficits. The US benefits from the US dollar’s role as the world’s primary reserve currency.
Central banks are bolstering demand by either keeping interest rates at record lows or reducing them and by purchasing bonds through a policy know as quantitative easing.
The US Federal Reserve has said it would keep its target rate for overnight loans between banks between zero and 0.25 percent through the middle of next year and is now selling US$400 billion of its short-term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.
The Bank of Japan has kept its key rate at or below 0.5 percent since 1995 and expanded the asset-purchase program last year to ￥20 trillion (US$260 billion). The Bank of England kept its main rate at a record low 0.5 percent last month and left its asset-buying target at ￡275 billion (US$426 billion).