Debt Worldwide Hit $215t in 2016

EghtesadOnline: Global debt rose to 325% of the world's gross domestic product in 2016, totaling $215 trillion, an Institute for International Finance report released on Monday showed, boosted by the rapid growth of issuance in emerging markets.

News ID: ۷۷۵۲۰۳

05 April 2017

Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320% of GDP in 2015, Reuters reported.

Emerging market debt saw a "spectacular rise" to $55 trillion outstanding in 2016, equal to 215% of their GDP. This was driven mostly by non-financial corporate debt, the report said.

Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006, according to the report.

Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance, Financial Tribune cited the institute.

Developed market countries accounted for $160 trillion, the lion's share of global debt, reaching nearly 4 times, or 390% of those markets' combined GDP.

The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with US and UK public sector debt having more than doubled since 2006. Japan and developed markets in Europe have seen an increase of about 50% in the dollar value of their outstanding government debt.

The majority of the increase in emerging market indebtedness has been in local currency, which was more than $48.5 trillion as of the end of 2016 from around $43 trillion in 2015.

Global Bond Issuance

Emerging market borrowers raised a record $181 billion in global bond markets during the first quarter of 2017, with both corporate and sovereign tallies surpassing previous highs, data from JPMorgan showed.

The bank, which runs the most widely used emerging debt indexes, said in a note sent late on Monday that sovereign year-to-date issuance stood at $61.5 billion, over $16 billion more than at this time of the year in the past.

Emerging market companies raised $119.1 billion, surpassing the previous high of $109.6 billion set in the first quarter of 2013, JPM said. The $51 billion sold in March was more than twice the $21.8 billion from a year back, and well above the average March supply of $28.4 billion.

The numbers testify to the global fundraising rush before the US Federal Reserve kicked off interest rate rises, precipitating a rise in US Treasury yields.

The Monday report found that outstanding emerging market debt had seen a "spectacular rise" to $55 trillion in 2016, equal to 215% of the GDP of developing nations, which was mostly by non-financial corporate debt.

JPM said appetite for emerging new debt was being supported by abundant cash flows to bondholders in the form of coupon payments and maturities that it estimated at $26.5 billion so far this year for sovereigns and $72 billion for corporates.

Emerging debt funds are also receiving inflows from investors, having just taken new money for nine weeks in a row.

JPM forecasts sovereign bond issuance at $137 billion in 2017 and corporate sales at $315 billion but added that the current issuance rate would pose "upside risk" to the forecasts, at least on the corporate front.

Emerging market bonds became an attractive option for income investors in the lower yielding environment of the past seven years. But BlackRock says their popularity will continue even as US interest rates rise.

“When interest rates go higher as we move from unconventional monetary policy to normalization, the prospect for making positive returns in low yielding assets becomes very complex, which in turn benefits emerging market and high yield bonds,” said Sergio Trigo Paz, head of emerging market debt at BlackRock.