The first edition of the Global Debt Report 2024: Bond Markets in a High-Debt Environment examines sovereign, corporate and sustainable bond markets, providing insights into current market conditions and associated policy considerations, including possible financial stability risks.
Sovereign and corporate bond markets have grown significantly since 2008. A favorable funding environment contributed to a surge in bond issuance which also expanded into riskier market segments, including lower rated governments and companies.
At the end of 2023, the total volume of sovereign and corporate bond debt stood at almost USD 100 trillion, similar in size to global GDP. Total OECD government bond debt is projected to increase to USD 56 trillion in 2024, an increase of USD 30 trillion compared to 2008. At the end of 2023, global corporate bond debt reached USD 34 trillion and over 60 per cent of the increase since 2008 came from non-financial corporations.
At the end of 2023, the total amount of corporate and official-sector sustainable bonds outstanding totalled USD 4.3 trillion, up from USD 641 billion just five years prior.
This has made it a key source of funding for both governments and companies to accelerate their transition to a low-carbon economy. In the sustainable bond market, the corporate sector accounts for more than half of total issuance.
Favourable funding conditions between 2008 and 2022 enabled many governments and companies to borrow at low cost. However, around 40% of sovereign bonds and 37% of corporate bonds globally will mature by 2026, requiring further borrowing from the markets under higher interest rates. Even if inflation is brought down to central banks’ targets, yields will likely remain higher than when most of the debt was originally issued.
This will lead to growing financing pressures, particularly in emerging economies where the amount of corporate bonds maturing in the next three years is significant, representing 51% (USD 4.4 trillion) of the total in 2023.
A large part of the increased borrowing since 2008 has been absorbed by central banks. However, as central banks withdraw from bond markets through quantitative tightening, a growing share of bonds are being purchased by more price-sensitive investors such as households and the non-bank financial sector.
The current macroeconomic landscape is transforming global bond markets at a pace not seen in decades. This has profound implications for debt markets and financial stability at a time of increased financing pressures.
Government spending needs to be highly targeted and focus more on investment in areas that drive productivity increases and sustainable growth. Meanwhile market supervisors should be closely monitoring the evolution of debt sustainability indicators in businesses and exposures in the financial sector should credit quality deteriorate significantly.
Further improvements are also needed in the sustainable bond market to enhance its efficiency, adopting high-quality sustainable bond standards and requiring external reviews, to ensure that these bonds deliver the intended positive impacts for society and the environment, including to help effectively combat climate change.
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