Global government and corporates embarked on a US$25 trillion borrowing spree last year taking the collective outstanding bond debt mountain above US$100 trillion, according to the OECD.
In its second annual dive into global bond markets, the OECD report says both corporate and sovereign borrowers will face “refinancing risks” amid persistent high interest rates.
Total “interest payment to GDP ratios increased in about two-thirds of OECD countries in 2024 and reached 3.3%, an increase of 0.3 percentage points compared to 2023”, the paper says.
“This means spending on interest payments is greater than government expenditure on defence in the OECD on aggregate. Looking ahead, 42% of total sovereign debt and 38% of all outstanding corporate bond debt is set to mature in the next three years.”
The 178-page opus also notes that central bank holdings of domestic sovereign bonds have decreased from 29 per cent of outstanding debt in 2021 to 19 per cent last year as monetary authorities sought to exit ‘quantitative easing’ stockpiles built up during the GFC and COVID-19 crises.
To just maintain borrowings at current levels “existing investors will need to buy more debt or new, likely more price-sensitive, investors will need to enter the market”, the OECD study says.
But both government and corporate bond offers are on track to spike higher again this year.
“Sovereign bond issuance in OECD countries is projected to reach a record USD 17 trillion in 2025, up from USD 16 trillion in 2024 and USD 14 trillion in 2023. Borrowing from markets has also increased sharply among emerging market sovereigns. Bond issuance rose from around USD 1 trillion in 2007 to over USD 3 trillion in 2024. Outstanding debt levels in emerging markets neared USD 12 trillion in 2024, up from USD 4 trillion in 2007,” the paper says.
“The outstanding global stock of corporate bond debt also resumed its long-term growth path in 2024, following two years of inflation induced real-term reductions that temporarily halted over 20 years of consecutive increases. At the end of 2024, global corporate bond debt amounted to USD 35 trillion, alongside USD 25 trillion of syndicated loans and at least USD 1.6 trillion of private credit.”
However, governments have largely borrowed to paper over the GFC and COVID cracks rather than addressing “long-term investment needs”.
Corporates also mostly tapped the bond market for financial engineering purposes instead of “productive investment”, the OECD says.
“… a lot of debt in recent years has been used to fund financial operations like refinancings and shareholder payouts,” the study says. “This suggests existing debt is unlikely to pay itself off through returns on productive investment.”
Carmine Di Noia, OECD director financial and enterprise affairs, says in the report that while global debt markets have handled the mounting pressure to date, the stress levels are set to ratchet higher.
“The world in which debt markets operate is also changing rapidly,” Di Noia says. “… Difficult choices already have to be made. With each cent raised through debt markets costing more, these decisions become trickier still.”