OECD Nations to Issue Bonds Worth $17 Trillion

Sovereign bond issuance in the Organisation for Economic Cooperation and Development (OECD) countries is projected to reach a record $17 trillion in 2025, up from $14 trillion in 2023. Outstanding debt is projected to rise from $54 trillion in 2023 to almost $59 trillion in 2025 according to a new OECD report.

The report entitled Global Debt Report 2025: Financing Growth in a Challenging Debt Market Environment” also said that in emerging markets and developing economies, sovereign borrowing from debt markets has also grown significantly, from around $1 trillion in 2007 to over $3 trillion in 2024, with issuance increasing by 12% in 2024. China accounted for 45% of total issuance in 2024, up from around 17% between 2007 and 2014.

The report also said that the outstanding global stock of corporate bond debt reached $35 trillion at the end of 2024, resuming a long-term trend of over two decades of consecutive increases in borrowing that came to a temporary halt in 2022. This long-term growth has largely been driven by increased issuance by non-financial issuers, whose debt has nearly doubled since 2008.

Higher borrowing costs are starting to be felt as Government interest payments increased as a share of GDP in about two-thirds of OECD countries in 2024, reaching 3.3%, an increase of 0.3 percentage points compared to 2023.

“This means spending on interest payments is greater than government expenditure on defence in the OECD on aggregate. It also raises refinancing risks for both sovereign and corporate issuers, with nearly 45% of sovereign debt in OECD countries set to mature by 2027. Roughly one-third of all outstanding corporate bond debt is also set to mature in the next three years,” the report noted.

Most corporate debt in recent years has been used to fund financial operations like re-financings and shareholder pay-outs and there has not been an associated increase in corporate investments to help boost productivity.

The withdrawal of central banks from sovereign debt markets continued in 2024. In OECD economies, central bank holdings of domestic sovereign bonds continuously fell from 29% of total outstanding debt in 2021 to 19% in 2024, while domestic households’ share grew from 5% to 11%, and that of foreign investors from 29% to 34%.

Borrowings

The governments and companies borrowed $25 trillion from markets in 2024, which is $10 trillion more compared with the pre-COVID period, and nearly three times the amount raised in 2007, the report said.

It also showed that debt levels are expected to rise further in 2025, with the aggregate central government marketable debt-to-GDP ratio in OECD countries reaching 85%, more than 10 percentage points higher than in 2019 and nearly double the 2007 level.

Bond yields in several key markets rose despite policy rates falling, while both sovereign and corporate indebtedness increased. This combination of higher costs and higher debt risks restricting capacity for future borrowing at a time of significant investment needs.

Past borrowing, a legacy of the 2008 financial crisis and COVID-19 pandemic, has been used primarily to cushion the impact of shocks and facilitate recovery. Now, significant new investment will be needed to advance medium- and long-term policy goals, including to boost growth and productivity, respond to population ageing and address defence needs.

OECD Secretary-General Mathias Cormann said that sovereign and corporate debt levels continue to grow across the world, at a time of increasing borrowing costs and market volatility.

“Increasing the efficiency of public spending, prioritising government borrowing for productivity enhancing public investment that enhances long-term growth and providing firms with incentives to ensure their borrowing enhances their productive capacity, will contribute to improving debt prospects,” Cormann said.

Climate Transition Investment

Continuing at recent growth rates in public and private climate transition investment, advanced economies would not be aligned with the Paris Agreement goals until 2041. The situation is particularly challenging for most emerging markets, which would not meet the Paris Agreement goals by 2050 at current growth rates.

Greater levels of public sector financing would add significantly to public debt-to-GDP ratios over coming decades, while more reliance on the private sector would require rapid development of capital markets and high levels of growth in debt issuance.

Financial regulation reforms will be essential to unlock debt markets’ potential to finance the climate transition, particularly to enhance capital market development in emerging markets, the report added.