World leading economies to see drop in debt

Amount of bills, notes and bonds coming due will fall to US$7.38 trillion from US$7.6 trillion

PUBLISHED : Thursday, 03 January, 2013, 12:00am
UPDATED : Thursday, 03 January, 2013, 4:36am

The world's leading economies will have US$220 billion less sovereign debt to refinance this year, cutting supply after every major government bond market rallied for the first time since the 2008 financial crisis.

The amount of bills, notes and bonds coming due for the Group of Seven nations, Brazil, Russia, India and China will drop to US$7.38 trillion from US$7.6 trillion last year, according to data.

Japan, Britain, Germany, France, Italy and Brazil will see a decline, while the United States, Canada, Russia, India and China will face an increase.

While high debt loads are blamed for curbing global economic growth, bond investors are encouraged by signs that some nations are starting to rein in their spending and extending the average maturity of their obligations. Instead of rising, borrowing costs are falling as supply shrinks, inflation remains in check and central banks from the US to Europe cut interest rates to record lows.

"The progress made in fiscal adjustments has been quite significant in a number of countries, perhaps more than the market is realising," said Mohit Kumar, the head of European interest-rate strategy at Deutsche Bank. "Policy will remain accommodative. I don't expect to see a sell-off in core government bonds. There will be enough demand."

Deutsche Bank expects German bonds to outperform French debt even as it forecasts German 10-year yields will probably reach 2.25 per cent at the end of this year, from 1.32 per cent at the end of last month and compared with the average over the past five years of about 2.85 per cent. It also favours Italian notes.

Government securities in 26 markets tracked by Bloomberg and the European Federation of Financial Analysts Societies generated positive returns last year for the first time since 2008, when Lehman Brothers collapsed.

The debt returned about 4.5 per cent worldwide on average, led by a 78 per cent gain on Greek bonds, based on Bank of America Merrill Lynch's US$23.4 trillion Global Sovereign Broad Market Plus Index. That is above the average of 3.6 per cent in the previous three years and compares with about 4.44 per cent the past decade.

Average yields on government bonds have fallen to 1.4 per cent from 1.76 at the end of 2011, the index shows.