{"text":[[{"start":6.69,"text":"The writer is a financial journalist and author of ‘The Economic Consequences of Mr Trump’"}],[{"start":12.780000000000001,"text":"Government bond for sale: will accept any reasonable offer. Politicians across the developed world have a problem. They have large debts and need to borrow more money every year. But it is getting increasingly difficult to find automatic buyers of their bonds. "}],[{"start":28.770000000000003,"text":"The latest OECD report on government debt estimates that sovereign bond issuance by the group’s countries will be $17tn in 2025, up from $14tn in 2023. Some of that will, of course, be used to refinance existing debt, but the total amount of debt outstanding is expected to rise to $59tn, or about 84 per cent of the GDP of those countries."}],[{"start":58.21000000000001,"text":"Quite a lot of that debt is of shorter maturity, and the report estimates that 45 per cent of it will mature by 2027. When it does mature, it will be refinanced at greater cost, since much of it was issued during an era of low interest rates. That will put further pressure on government finances. Government debt interest costs in the average OECD country are at present 3.3 per cent of GDP, more than the amount spent on defence. "}],[{"start":89.84,"text":"The obvious answer might be to cut the deficit. But politicians face considerable problems when they try to do so. Many have promised to spend more on defence. Cutting spending or pushing up taxes risks alienating electorates, which seem increasingly willing to vote for populist, or nativist, parties. And if those populists get into office, their policies seem likely to make deficits even bigger."}],[{"start":117.19,"text":"So if bonds are likely to be issued in increasing quantities, who will buy the debt? That wasn’t much of a problem during the 2010s. Governments were able to finance their deficits with ease; sometimes they were even able to issue bonds at negative yields, meaning that those who bought them were doomed to suffer a loss (in nominal terms, at least) if held till maturity. (The bonds could still deliver a positive return in real terms if there is deflation.)"}],[{"start":148.28,"text":"One steady group of purchasers was central banks under the quantitative easing programmes launched in the wake of the 2007-09 crisis. While central banks only bought bonds in the secondary market, rather than directly from the governments, the purchasing programmes were reassuring for investors who knew there would always be ready buyers for their debt holdings."}],[{"start":172.86,"text":"But central banks have stopped QE and are unwinding their holdings in programmes dubbed quantitative tightening. The more bonds central banks sell via QT, the more other investors have to buy, on top of new supply from governments. Already, central bank holdings of government debt in the OECD have dropped from 29 per cent of the total in 2021 to 19 per cent in 2024. And QE is unlikely to restart any time soon; if central banks do want to ease monetary policy, they will cut interest rates first."}],[{"start":213.74,"text":"Pension funds have often been important buyers of domestic government bonds. But this source of demand is also reducing. Traditional pension funds offered defined benefit pensions, where retirement income was linked to the employee’s salary. Many DB pension funds bought government bonds to hedge their liabilities. But in recent decades, there has been a rapid expansion of defined contribution funds, which simply accumulate a pot for workers to use at retirement. These tend to have much less exposure to bonds than DB funds. Globally, DC funds now have 59 per cent of all pension fund assets, compared with 40 per cent in 2004, according to the Thinking Ahead Institute."}],[{"start":261.02,"text":"Lacking steady demand from central banks and pension funds, governments may need to rely on international investors, such as hedge funds, which are very sensitive to the need to maximise returns. The OECD figures show that foreign investors owned 34 per cent of bonds in 2024, up from 29 per cent in 2021; foreigners are now the biggest single group of investors."}],[{"start":289.09999999999997,"text":"In this context, the intriguing question raised by Albert Edwards, of Société Générale, is whether a recent rise in Japanese government bond yields may prove to be a problem. Edwards is a well-known bear, but usually of equities, not bonds. He argues that many investors have been indulging in the “carry trade”, borrowing cheaply in yen and investing the proceeds in the bonds of other countries. Japanese debt is no longer quite as cheap to borrow in, with the 10-year government bond yield having risen from zero at the end of 2021 to 1.6 per cent today (Japanese 30-year yields are about 3 per cent)."}],[{"start":332.74999999999994,"text":"These jumps in Japanese yields may explain some of the recent episodes of nervousness in government bond markets, since leveraged investors will have had to sell assets (such as their bond portfolios) to repay their more expensive debts."}],[{"start":348.73999999999995,"text":"In the short term, the basic arithmetic of bond markets has deteriorated; more supply coupled with a reduction in both reliable and speculative demand. And that means higher bond yields look probable, forcing governments to pay more to fund their ever-growing deficits. The maths of governing developed countries looks likely to get increasingly difficult."}],[{"start":380.94999999999993,"text":""}]],"url":"https://audio.ftmailbox.cn/album/a_1753793663_9281.mp3"}