The Biggest Economies May Experience Bond Tab Falling $220 Billion

Each of the major Government bond markets have registered increase for the 1st time since the 2008 financial crisis and as a result, the leading economies of the world will be having at least $220 billion less sovereign debt to refinance in this year. According to statistics, the amount of notes, bills and bonds coming due for the 7 nations of G-7 and Russia, China, India & Brazil combined will decrease to $7.38 trillion from that of $7.60 trillion in 2012. Individually, countries like Brazil, Italy, France, UK and Germany are expected to experience decline. While, Canada, US, India, Russia and China will see a surge.

High debt loads are responsible for reducing the global economic growth. However, bond investors are hopeful as some countries have started to rein in spending with extending the average maturity of the obligations. As the overall supply is decreasing, the borrowing costs are going down as well. Hence, the inflation is staying within control. Significantly, in last year, the Central Banks of both Europe and US decided to reduce interest rates to record low figures.

According to the Head of European Interest Rate Strategy Department of Deutsche Bank AG, Mohit Kumar, the policies will continue to be accommodative. Mohit added that chances of a selloff in the core Government bonds are slim and hence the demand will be high.

Deutsche Bank believes that the German bonds will be able to have better results than the French debt and the 10-year yields will increase to 2.25% by the end of this year. It is also expected that US will become the country with most amount of debt due, thereby overtaking Japan in 2013. The maturities are expected to jump up to $2.9 trillion from $2.6 trillion of 2012 for US. The redemptions for Japan, on the other hand, will drop to $2.6 trillion from that of $3 trillion in 2012. The other three in the debt list are expected to be Italy ($414 billion), France ($357 billion) and Germany ($283 billion).

As far as International Monetary Fund predictions are concerned, the fiscal tightening in the advanced economies will be equivalent to 1% of the GDP in this year; the same was 0.75% in 2012. On the other hand, no significant fiscal consolidation is expected, when it comes to the emerging economies, in 2013.

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