OECD Sovereign Borrowing Outlook 2017 - Key Findings

OECD Sovereign Borrowing Outlook 2017 - Key Findings

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  OECD Sovereign Borrowing Outlook2017 KEY FINDINGS
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  2 Key findings Sovereign debtburdens remain high, although the pace of debt accumulation has stabilised in recent years • The aggregate central government marketable debt will gradually increase to USD 42.2 trillion in 2017 • The central government marketable debt-to-GDP ratio, which surged from 49.8% to 74.6% between 2007 and 2015, is projected to decline to 73% in 2017, reflecting expectations for higher economic growth • The high level of debt servicing, combined with large net borrowing needs, has generated challenging rollover ratios Ultra-low interest rate environment has had implications on both primary and secondary markets for government securities • Cost of sovereign borrowing has reduced considerably in several OECD countries • Some sovereigns have issued negative yielding debt and received premiums from these issues • Sovereign funding strategies have leaned steadily towards long-term financing instruments • Large central banks and public funds have become dominant holders of sovereign debt in major OECD countries Post-crisis rise in the use of index-linked sovereign bonds • The outstanding volume of inflation-linked sovereign debt more than doubled between 2007 and 2015, and is expected exceeds USD 3 trillion in 2017 • Regional aggregates indicate that linker markets, already developed in G7 countries, have been progressing from their niche status in EMs
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  A continued declinein government borrowing needs has limited the pace of debt accumulation in recent years Notes: GBR = gross borrowing requirement, NBR = net borrowing requirement. Source: 2016 Survey on central government marketable debt and borrowing by the OECD Working Party on Debt Management; OECD Economic Outlook No 100. 3
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  The central governmentmarketable debt-to-GDP ratio 4 0 10 20 30 40 50 60 70 80 90 100 OECD G7 Euro area - 16 members Emerging OECD Other OECD 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Notes: As a percentage of GDP. Central government marketable gross debt. Source: 2016 Survey on central government marketable debt and borrowing by the OECD Working Party on Debt Management; OECD Economic Outlook No 100. Sovereign debt burdens remain high by historical standard, though debt-to-GDP ratio is projected to decline in 2017
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  Redemption profiles continueto be challenging Cumulative percentage of debt maturing in the next 12, 24 and 36 months (As a percentage of total marketable debt as of 2016) Source: 2016 Survey on central government marketable debt and borrowing carried out by the OECD Working Party on Debt Management; OECD Economic Outlook No. 100; Thomson Reuters, national authorities’ websites and author calculations. 5
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  Government bonds yieldsare low, sometimes even negative 6 Notes: Interest rates in percentages. The charts show the evolution of several metrics (minimum, maximum, 25th percentile, 75th percentile, median) of 3-year and 10-year benchmark government bond yields, calculated on the following group of countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hungary, Ireland, Italy, Japan, Netherlands, New Zealand, Norway (5-year and 10-year yields only), Poland, Portugal, Spain, Sweden, Switzerland, United Kingdom and the United States. Source: Thomson Reuters and author calculations -5 0 5 10 15 20 25 Range 25th percentile 75th percentile Median -5 0 5 10 15 20 25 5-year benchmark government bond yield -2 -1 0 1 2 3 4 5-year benchmark government bond yield
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  Slow pass-through impactfrom long-term interest rates to net interest payments on government debt 7 Notes: OECD area estimates. Long-term interest rates derived from long-term interest rate on government bonds calculated as a GDP weighted average. Source: OECD Economic Outlook No. 100 and author calculations.
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  Average maturity ofoutstanding OECD government marketable debt has been increasing Notes: Average term-to-maturity in years (e.g. 0.5 years correspond to 6 months) of outstanding marketable debt. Source: Surveys on central government marketable debt and borrowing carried out by the OECD Working Party on Debt Management; debt management offices and national authorities’ websites and OECD calculations. 8
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  Issuance of ultra-long-termgovernment bonds is trending upwards 9 Notes: As of December 2016 for OECD countries only, volume is based on issuance amounts using flexible exchange rates. Source: Thomson Reuters, national authorities’ websites, OECD Economic Outlook No. 100 and author calculations.
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  Duration risk ofportfolio of outstanding G7 government debt is high Mark-to-market losses for a 1% yield increase 10 Note: Approximate losses on government bonds issued by G7 governments in G7 markets for an assumed market interest rate increase by 1% (vertical axis, in USD billion), based on bond-specific estimates of modified duration (horizontal axis, in years). Excludes short-term securities, data as of December 2016. Source: Thomson Reuters, and OECD calculations.
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  Some sovereigns haveissued negative-yielding debt and received premiums from these issues 11 Negative-yielding sovereign bond issues by selected OECD governments*, 2014-2016 Source: Thomson Reuters, national authorities’ websites and author calculations. Country compositions of outstanding negative-yielding sovereign bond issues, 2014-2016 *The countries included in this calculation are Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Poland, Spain, Sweden and Switzerland 0 30 60 90 120 150 180 0.0 0.2 0.4 0.6 0.8 1.0 1.2 2014 2015 2016 Trillion Total issues amount (USD, LHS) Number of issues (RHS) JPN, 65% DEU, 18% FRA, 9% NLD, 2% ITA, 2% Others*, 3%
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  12 Post-crisis rise inthe use of index-linked sovereign bonds Source: 2016 Survey on central government marketable debt and borrowing carried out by the OECD Working Party on Debt Management; debt management offices and national authorities’ websites and OECD calculations.
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  Looking ahead • Globally,enhanced financial stability and low interest rate environment have improved current borrowing conditions in government securities market • Looking forward, elevated monetary and fiscal policy uncertainties pose significant challenges for sovereign issuers and require concerted efforts among policy makers, particularly a strong co- ordination between sovereign debt managers, central bankers and fiscal authorities to ensure a well- functioning government securities market
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  Find us online OECDSovereign Borrowing Outlook www.oecd.org/finance/oecdsovereignborrowingoutlook.htm www.oecd.org/daf/publicdebtmanagement Contact Fatos Koc, Head of Bond Market and Public Debt Management Unit, OECD, Paris, France [email protected] Gary Mills, Statistician, Bond Market and Public Debt Management Unit, OECD, Paris, France [email protected] Sebastian Schich, Principal Administrator, Financial Affairs Division, OECD, Paris, France [email protected] 14