London - Governments of the world’s leading economies
have about $7.7 trillion of debt maturing in 2017, with most facing higher
borrowing costs as a three-decade bull market for bonds shows signs of running
out of steam.
The amount of sovereign bills, notes and bonds coming due
for the Group-of-Seven nations plus Brazil, Russia, India and China will climb
more than 8 percent from approximately $7 trillion in 2016, according to data
compiled by Bloomberg. The first substantial increase since Bloomberg started
collating the data in 2012 is led by China, where $588 billion of expected
redemptions represents a 132 percent jump from 2016.
Money managers including Pioneer Investment Management
and Old Mutual Global Investors said they are either bearish or less
positive on government bonds as they expect US-led reflation and fiscal
expansion to gradually replace monetary policy as a growth driver and push up
yields further.
“We do expect higher bond issuance in 2017 as a result of
either direct fiscal stimulus or budget deficit slippage,” said Cosimo
Marasciulo, Dublin-based head of government bonds at Pioneer, which manages
about $250 billion. “This increased bond supply will be a headwind for
investors already facing a boost to economic activity and inflation from this
increased fiscal spending. Bond valuations are already looking unattractive
from a fundamental viewpoint. We think there are dark clouds on the
fixed-income horizon.”
While signs of economic growth and rising inflation
expectations have driven up yields on longer-dated bonds, they are still close
to record lows. Even as investors demand a higher premium to hold these
securities, that may not deter governments from issuing more long-maturity debt
this year, according to Commerzbank, one of the biggest primary
dealers of German government bonds. Austria, Italy and Spain were among
European countries which last year sold bonds with the longest maturities they
have issued on record.
In developed economies, maturing debt will increase in
the US, Italy, and Germany and fall in Japan, France and the UK. The numbers
do not take into account fresh budgetary needs.
“The drive to lock in the still low yields for as long as
possible is still there,” said David Schnautz, a London-based fixed-income
strategist at Commerzbank. “If conditions permit, I would say debt agencies
will go for, as an example, a 20-year bond versus a 16-year bond.” “We are very
bearish bonds,” said Mark Nash, head of fixed income at Old Mutual Global
Investors in London. “It does feel like the train has left the station. Global
bonds posted their biggest quarterly decline on record in the final three
months of 2016, according to Bloomberg Barclays World Bond Indexes, dropping
more than 7 percent. Still, not everyone is bearish.
“I’m extremely skeptical
about the idea of a sustained upward break in inflation, growth and bond
yields,” said Steven Major, head of fixed-income research in London at HSBC
Holdings. Major stood out in 2014 for correctly predicting that Treasury
10-year yields would drop to about 2.1 percent by the end of the year, while
the median forecast was 3.4 percent.
-With assistance
from Marianna Aragao.
BLOOMBERG