Fitch warns bond yield surge is worsening debt outlook for developed economies

Fitch: Bond Yield Surge Worsening Debt and Fiscal Challenges for Developed Economies

Impact of Rising Government Bond Yields on Developed Economies

LONDON, Oct 13 (Reuters) - Rising government bond yields are making it much harder for major developed economies to stabilise debt burdens, with countries including France, the US and Britain facing growing fiscal challenges, credit rating agency Fitch said on Tuesday. 

Overview of Bond Yield Increases

In a report, Fitch said benchmark 10-year government bond yields in the world's 10 largest developed economies had risen by an average of 81 basis points so far this year. That would contribute to a nearly $4 trillion increase in overall developed-market government debt, taking it above $75 trillion, or $68.5 trillion across the top 10 economies.

Key Statistics and Fiscal Implications

• The median 10-year yield across the largest developed economies is now 161 bps above the average interest rate paid on outstanding debt, making it harder to reduce or even stabilise debt levels

Country-Specific Fiscal Challenges

• France: France faces one of the steepest challenges. It would need to cut its primary deficit to 0.4% of GDP from a projected 2.9% this year to stabilise its debt burden, while a rise in effective borrowing costs to current market yields would require a further fiscal adjustment of about 3.1% of GDP
• United States: The US is expected to run the largest general government budget deficit this year, at 7.5% of GDP, or $2.4 trillion, followed by France (5.4%), the UK (4.8%) and Germany (3.7%)
• Germany and Other Economies: Deficits are expected to widen the most this year in Germany, by 1.1 percentage points, followed by the US and Canada, both by 0.7pp, and to narrow the most in Britain, by 0.4pp

Debt-to-GDP Ratio Forecasts Through 2030

• By 2030, debt-to-GDP ratios are forecast to rise most in France, by 12pp to 128%, followed by the US and Germany. Japan's ratio is expected to fall 11pp to 185%.

(Reporting by Marc Jones. Editing by Mark Potter)