Fitch warns bond yield surge is worsening debt outlook for developed economies
TLT•Fitch said rising government bond yields are making it harder for major developed economies to stabilise debt burdens. Yields in the 10 largest developed economies have risen an average of 81 basis points this year, contributing to a nearly $4 trillion increase in government debt to more than $75 trillion.
1. Higher borrowing costs
Benchmark 10-year government bond yields in the world’s 10 largest developed economies have risen an average of 81 basis points so far this year, Fitch said. The median yield is now 161 basis points above the average interest rate on outstanding debt, making it harder to reduce or stabilise debt levels.
2. Fiscal challenges vary
France would need to cut its primary deficit to 0.4% of GDP from a projected 2.9% this year to stabilise its debt burden. If effective borrowing costs rose to current market yields, France would need a further fiscal adjustment of about 3.1% of GDP. The US is expected to have the largest government budget deficit this year, at 7.5% of GDP, or $2.4 trillion.
3. Debt forecasts to 2030
By 2030, France’s debt-to-GDP ratio is forecast to rise 12 percentage points to 128%, the largest increase, followed by the US and Germany. Japan’s ratio is expected to fall 11 percentage points to 185%.
