Inaugural Janus Henderson Sovereign Debt Index reveals US government debt has increased almost twice as fast as the rest of the world since 1995

• Total US government debt is worth $59,109 for each citizen - only Japan and Singapore owe more per person.
• The cost of servicing US government debt in 2020 was $479 billion.

Global government debts jumped by over a sixth in 2020 to a record $62.5 trillion

The world’s governments took on eight years’ worth of borrowing in 2020 to fight the global pandemic, increasing their debts by over a sixth (17.4%), according to the first edition of Janus Henderson’s Sovereign Debt Index. As eight in ten countries in the index slipped into recession, governments added $9.3¹ trillion to their tab. This is equivalent to one seventh (14.8%) of the world’s GDP², a bigger slice than was needed to shore up the economy in the aftermath of the global financial crisis. The world’s government-debt tally ended the year at a record $62.5 trillion, almost four times its 1995 total (+273%) and equivalent to $13,050 per person³.

The biggest economies took on the biggest debts in 2020, but the UK had the largest budget deficit

Some countries have taken on more debt than others to meet the challenges of the last year. In absolute terms the biggest economies naturally borrowed most. The US, Japan and China alone accounted for more than half of the world’s new government borrowing in 2020.

Compared to the size of its economy, the biggest borrower was the UK with a government budget deficit worth one fifth of its GDP, but the US, Brazil, South Africa, Spain, Canada, Japan and Singapore all ran deficits at least one eighth the size of their economies too. Sweden and Switzerland are among those that have borrowed the least, but none comes close to Taiwan whose debts remained almost unchanged year-on-year relative to GDP as a robust response to the outbreak enabled its economy to expand.

Even before the pandemic struck, the world’s governments ran deficits in every one of the last 25 years as spending ran ahead of tax collection. Happily, the world economy also grew substantially, underpinning the debt edifice with a larger tax base, but the increase in sovereign debt has nevertheless outstripped economic growth by a fifth.

But this debt is cheap to finance

Despite sharply higher borrowing the burden of servicing all this debt has not increased. In 2020, the world’s governments had to pay just 2.0% for their loans⁴, compared to 7.6% in 1995. This huge drop in rates means the world’s interest bill has only gone up by just over a fifth despite debts almost four times higher. Relative to GDP, the burden of interest has more than halved since 1995. No country in Janus Henderson’s index paid a higher interest rate in 2020 than in 1995.

The steady fall in interest rates has driven dramatic returns for bond investors

Governments finance their deficits by issuing bonds to investors which can be bought and sold on financial markets. The steady decline in interest rates over the last 25 years has driven significant returns for bond investors. Between 1995 and 2020 the Global Government Bonds Index⁵ generated a total return of 308% in USD terms, nearly five times the rate of inflation over the same period.

Debts will jump again in 2021, adding $768 per person

2021 will see another big jump in government borrowing of around $4 trillion, or $768 for each person, but compared to the size of the world economy, debt levels have already peaked thanks to a likely strong economic recovery.

Bethany Payne Global Bonds Portfolio Manager at Janus Henderson said: “Debt often comes laden with moral baggage that suggests it should be avoided, but a hair-shirted view misunderstands the importance of government borrowing to support the economy in bad times like 2020. Debts are at record levels, but financing costs are so cheap that borrowing was the right call.

“Economic growth is the most painless way to overcome large government borrowing. The recovery from Covid-19 is going to be very uneven. Service-driven economies like the UK that had a tough 2020 should rebound faster than manufacturing-driven economies like Germany that were less affected by the drop in global demand in 2020.

“Many countries have also focused their recent borrowing on loans that will need to be repaid in relatively short order - for these there is a real risk of being caught out having to refinance large amounts of debt at uncomfortably higher rates in future.”

Jim Cielinski, Global Head of Fixed Income added: “The bond markets are a huge machine for judging the creditworthiness and economic performance of each country - they determine how much a government must pay to borrow. They are not only important for bond investors. The interest rates set in the bond markets affect the value of every asset, from homes to stock markets.

“One way or another, everyone has a stake in the bond markets. People can own bonds in their own right, or they can choose to own them via fixed-income investment funds. Bonds help fund retirement incomes for pension funds. Insurance companies use them to manage risks and fund payouts. The banking system, mortgages and savings rates all depend on the bond markets. Without the bond markets modern economies simply could not function.

“Investors have enjoyed superb returns from bonds in recent years, but interest rates are now on the way up again and that presents risks. Central banks will work to keep rates low for now, but stronger economies tend to be bad news for bond prices.”

Notes to editors

Janus Henderson Group (JHG) is a leading global active asset manager dedicated to helping investors achieve long-term financial goals through a broad range of investment solutions, including equities, fixed income, quantitative equities, multi-asset and alternative asset class strategies.

At 31 December 2020, Janus Henderson had approximately US$402 billion in assets under management, more than 2,000 employees, and offices in 26 cities worldwide. Headquartered in London, the company is listed on the New York Stock Exchange (NYSE) and the Australian Securities Exchange (ASX).

Methodology

Janus Henderson sourced data on government debt, GDP, debt interest payments and budget deficits from EIU, supplementing it with data from individual country sources where necessary. To enable full comparability between different data sets, all data is in nominal USD (ie not adjusted for inflation), unless stated otherwise. Bond market data was sourced from Bloomberg. Janus Henderson sourced other data from national central banks, the OECD, the IMF and World Bank. The countries in Janus Henderson’s index together account for 88% of global GDP and two thirds of the world’s population. Figures are not scaled up to take account of parts of the world not in the sample.

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¹ If we take out the effect of changing exchange rates, the increase was $8.1 trillion

² 14.8% of GDP of countries in the index – these countries represent 88% of global GDP

³ Countries in our index represent 67% of the world’s population in 2020

⁴ Debt interest payments divided by average public debt

⁵ Bloomberg: W0G0, Total return, USD,Hedged

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