$ 6.2trn Debt growth will be driven primarily by the United States, Japan and China, but each country in the world could see their debt levels increase, Janus Henderson said.
In 2021 alone, global government debt jumped to $ 65.4trn, an increase of 7.8% year-on-year, as each country increased its borrowing in the Covid-19 epidemic.
Meanwhile, the global interest burden will rise by about one-seventh this year on a fixed-currency basis to 1.16trn.
Emerging markets: Focus on debt
Janus Henderson said the biggest impact is likely to be felt in the UK, due to rising interest rates, the impact of high inflation on the UK’s index-linked debt and the cost of releasing the country’s quantitative easing program.
This is because “significant” revenue costs come with unwinding QE as interest rates rise.
According to the fund manager, central banks will “crystallize” their bond holding losses “for which taxpayers have to pay”.
Bond market hangover: Investors need to ‘ignore noise’
Taxpayers in the UK and outside, of course, are already struggling with the cost of living as inflation bites and energy bills skyrocket.
Bethany Payne, portfolio manager at Janus Henderson’s Global Bond, said: “The epidemic has had a huge impact on government borrowing – and the aftermath will continue for some time to come. The tragedy in Ukraine could force Western governments to borrow more to increase defense spending. “
But rising government debt levels around the world are not without opportunities for investors, Janus Henderson noted.
Payne explained that “despite the recent turmoil, opportunities exist for investors in the sovereign bond market. In the first few years of the epidemic, the big theme was how bond markets around the world came together.”
“Now, the theme is diversity; Governance changes are taking place in the United States, the United Kingdom, Canada, Europe and Australia, which are now focusing on how to tighten monetary policy to reduce inflation, while other regions are still in a relaxed mode.
“In terms of resource allocation, there are two areas of opportunity. One is China, which is actively involved in easing monetary policy, and Switzerland, which has more protection from inflationary pressures because energy receives a much smaller percentage of its inflation basket and their policy is tied to the ECB, but lags behind. “
