Global debt, China’s pessimism and Trump’s election odds
This week's chart pack covers the following topics:
IMF flags rising debt levels as fiscal pressures mount
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart displays the debt-to-GDP ratio across various global economies, segmented into three sectors: general government, households and nonprofit institutions serving households (NPISHs), and non-financial corporations. Key groupings, such as the G20, Emerging Markets, and Advanced Economies are also highlighted to provide a broad perspective on global debt distribution.
Behind the data
In its October 2024 Fiscal Monitor , the IMF projects that global public debt will exceed $100 trillion by the end of the year, with the global debt-to-GDP ratio expected to approach 100% by 2030. Rapid debt accumulation is concentrated in major economies, including the US and China, but the pace and composition of debt vary significantly worldwide.
The IMF identifies several key risks to public debt: rising costs from technology innovation, climate adaptation, demographic pressures, political volatility, and optimism bias in economic projections. To address them, it has introduced a “debt-at-risk” framework to help policymakers assess various debt scenarios under adverse conditions.
The analysis shows that, under current fiscal policies, most countries will be unable to stabilize their debt-to-GDP ratios without further adjustments. The IMF recommends gradual, people-centric fiscal adjustments to safeguard growth, warning that deep cuts to public investment could harm long-term economic stability. However, countries with strong fiscal institutions are better positioned to protect critical investments, even during crises.
Rising rates trigger historic losses on US investment securities
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart displays the unrealized gains and losses on US investment securities from 2006 to the present, focusing on two key categories: ‘available for sale’ and ‘held to maturity.’ It shows the value fluctuations in these securities for each year. The chart highlights the impact of recent interest rate hikes on banks’ balance sheets.
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Behind the data
The recent historic surge in interest rates has had a notable impact on banks’ balance sheets, significantly reducing the market value of Treasuries and government-backed mortgage securities. As rates rise, the value of these securities falls, leading to substantial unrealized losses. Even though the Fed has started a rate-cutting cycle, these unrealized losses remain elevated, currently exceeding $500 billion. This is considerably higher than those observed during the Global Financial Crisis (GFC), highlighting the scale of recent rate increases and their prolonged effects on asset valuations. ?
US yields defy expectations in latest Fed cutting cycle
Macrobond users can click here to access the chart and gain deeper insights into the data.
What the chart shows
This chart shows the response of US 10-year Treasury yields to the first rate cut in each of the past seven Fed rate-cutting cycles. The initial cut in each cycle is marked as Day 0, with yield movements tracked over the following 50 days. ?
Historically, yields have tended to decline within 50 days of a cut, reflecting market expectations of slower economic growth and further easing. In contrast, in the current cycle, the 10-year yield has climbed about 50 basis points in the 50 days since the Fed’s cut on 19 September.
Behind the data
Normally, Fed rate cuts signal slowing economic growth and lower inflation expectations, which often lead to lower long-term yields. However, this cycle has been different. Despite the recent cuts, the US economy remains strong, with consumer demand and the labor market showing resilience. This economic strength has tempered expectations for further easing, and as a result, yields have risen rather than fallen. ?
At the same time, investors are worried about another bout of inflation amid political uncertainty ahead of the election – further driving yields upwards. The potential for impactful policy shifts could alter inflation expectations, and markets are closely watching how yields may respond after the 5 November election. ?
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