Debt interest payments now equivalent to one-third of Social Security budget 

- In 2022, US public debt rose 11.5% to $24.8 trillion¹, as the US government accounted for more additional borrowing than every other country combined

- Total US debt is almost as large as Japan, China, France, the UK, Italy and Germany combined

- Globally, government debt rose 7.6% to a record $66.2 trillion in 2022

- Higher interest rates meant government interest bills soared 20.9% globally, the fastest rate of increase since 1984

- Interest paid on sovereign debt reached a record $1.38 trillion in 2022 and will double in the next three years

- Janus Henderson is bullish on bonds – the world economy will slow more than markets expect, and rates will peak sooner rather than later

The United States public debt rose to $24.8 trillion in 2022, up 11.5% or $2.6 trillion year-on-year. This debt increase funded a range of spending commitments by the Biden administration and accounted for over half the increase in global government debt last year, well ahead of the US’s two-fifths share of global GDP, according to the Janus Henderson Sovereign Debt Index.

US debt interest payments rose by one-seventh during the year to a record $404.1bn, equivalent to one third of the country’s social security budget. US government bonds have a short maturity profile relative to global bonds, which means large quantities of debt are being rapidly refinanced at higher rates. Therefore, US debt interest is likely to almost double in 2023 to $780bn and surge higher to almost $1.2 trillion by 2025.

Across the globe, governments face a painful reckoning as record debt and higher interest rates mean borrowing costs will double over the next three years.

Globally, government interest bills jumped by almost over a fifth in 2022 (+20.9% constant currency basis) to a record $1.38 trillion. This was the fastest increase since 1984 and reflected both rising rates and the swelling stock of sovereign borrowing. The effective interest rate, which includes older, cheaper borrowing, rose to 2.2% in 2022, up by one-seventh, year-on-year.

This cost continues to rise as new bonds are issued at higher interest rates and older, cheaper debt is retired. The effective interest rate in 2025 is set to be 3.8%, almost three-quarters more than 2022’s level.

This will prove very expensive for governments. By 2025, governments around the world will have to spend $2.80 trillion on interest, more than double the 2022 level. This will cost an additional 1.2% of GDP diverting resources from other forms of public spending or requiring tax rises. The US is particularly exposed on this measure.

Jim Cielinski, Global Head of Fixed Income at Janus Henderson said: “The level of government debt and how much it costs to service really matter to society, affecting decisions on taxation and public spending and raising questions of generational fairness. Since the Global Financial Crisis, governments have borrowed with astonishing freedom. Near-zero interest rates and huge QE programs by central banks have made such a large expansion in government debt possible, but bondholders are now demanding higher returns to compensate them for inflation and rising risks, and this is creating a significant and rising burden for taxpayers. The transition to more normal financial conditions is proving a painful process.”

Jason England, portfolio manager, global bonds at Janus Henderson said: “As we approach the midpoint of the year, the path of inflation, interest rates, and the economy remain the central forces in focus for bond investors. Each of these variables will have an impact on future government debt levels, and with the fate of longer-dated bonds resting on a yet-to-be-determined path for rates, we believe tactical investors stand to benefit from an active approach to fixed income investing.”

Notes to editors

Janus Henderson Group is a leading global active asset manager dedicated to helping clients define and achieve superior financial outcomes through differentiated insights, disciplined investments, and world-class service.

As of December 31, 2022, Janus Henderson had approximately US$287 billion in assets under management, more than 2,000 employees, and offices in 24 cities worldwide. Headquartered in London, the company is listed on the NYSE and the ASX.

¹ Gross debt, source EIU, March 2023

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