Bond rain in advanced economies

Over the next few weeks, governments in the U.S., U.K. and the eurozone will begin flooding the market with bonds at a pace rarely seen before. The countries, which were once struggling with unimaginably swollen deficits, will sell a net $2.1 trillion in new bonds, up 7% from last year, to finance their 2024 spending plans, Bloomberg Intelligence estimates. Concerns about rising budget deficits in advanced economies had faded recently, partly because of stalled inflation and investors’ focus on rate cuts. But many bond market analysts see it as only a matter of time before deficit concerns return, given current supply and demand dynamics. “Right now, the market is focused on the Fed’s interest rate cycle. Once that’s out of the question, we’ll start to worry more about the deficit,” said Padhraic Garvey, head of global bond and rates strategy at ING Financial Markets. Data from the International Monetary Fund (IMF) show that the public debt/GDP ratio in developed economies, which was around 75 percent 20 years ago, has risen to over 112 percent as governments increased borrowing after the pandemic.