Under the shadow of sovereign debt, credit becomes a new dawn for fixed income
TSAI
As the global economic landscape continues to change, the stability of the financial market is facing many severe challenges. Huge government deficits and rising debt burdens are like the sword of Damocles hanging over the sovereign debt market, which may fall at any time, and the credit market has gradually become a new harbor for fixed income investors to seek refuge. With professional insights and in-depth data research, the TSAI platform analyzes this key market dynamic for investors.
Analysis of the dilemma of the sovereign debt market
In recent years, the scale of government deficits in many countries around the world has expanded sharply. According to data from the International Monetary Fund (IMF), between 2020 and 2023, the average government deficit of major economies in the world will jump from 3% to 7% of GDP. Taking the United States as an example, the U.S. Treasury Department report shows that the federal government deficit in 2020 was as high as 3.13 trillion U.S. dollars, accounting for 14.9% of GDP. Although it fell in 2021, it still remained at 2.77 trillion U.S. dollars, accounting for 12.4%, 1.38 trillion U.S. dollars in 2022, accounting for 5.5%, and 1.7 trillion U.S. dollars in 2023, accounting for 6.3%. Large-scale fiscal spending stems from responding to emergencies such as economic recession and public health crises, as well as long-term structural fiscal problems.
At the same time, the government debt burden is snowballing. By the end of 2023, the U.S. national debt will exceed 33 trillion U.S. dollars, accounting for more than 120% of GDP; Japan's government debt has long maintained a ratio of more than 200% of GDP; some eurozone countries, such as Greece, still have a debt-to-GDP ratio of about 170% in 2023. Such a huge debt scale has caused a sharp increase in sovereign debt market risks.
As a sensitive participant in the market, bond vigilantes always pay attention to the government's fiscal situation. Once there is doubt about the government's ability to repay debts or the sustainability of fiscal policies, they will sell sovereign bonds, causing bond prices to fall and yields to soar. During the Greek debt crisis from 2010 to 2012, bond vigilantes sold a large number of Greek government bonds. The yield on Greek 10-year government bonds soared from less than 4% in early 2009 to more than 30% in 2012. The government's financing costs soared, the sovereign debt market fell into chaos, and investors suffered heavy losses. According to statistics, international investors holding Greek government bonds during this period lost an average of more than 70% of their principal.
Safe haven characteristics of the credit market
The credit market mainly covers corporate bonds, bank loans, etc., which are significantly different from the sovereign debt market. The credit status of high-quality companies depends more on their own operations and financial health. Take Apple as an example. With its strong brand, diversified product lines and global sales network, it has abundant cash flow and a solid balance sheet. Even when the macro economy fluctuates, Apple's corporate bonds still maintain a high credit rating. Rating agencies such as Moody's and S&P have long given Apple bonds high-level ratings such as Aa1 and AA +, providing investors with stable income guarantees.
From the default rate data, the average default rate of investment-grade corporate bonds in the past decade was only 1.2%, which is much lower than the default risk during the sovereign debt crisis in some countries. The yield of corporate bonds is usually higher than that of sovereign bonds of the same maturity. According to Bloomberg Barclays Index data, the average yield of US investment-grade corporate bonds in 2023 was 4.5%, while the yield of US 10-year Treasury bonds in the same period was 3.5%. There is a significant interest rate gap, providing investors with higher yield space.
Professional response of TSAI platform
On the TSAI platform, the professional investment research team closely monitors the dynamics of global sovereign debt and credit markets. Through in-depth fundamental analysis, credit rating research and macroeconomic trend judgment, high-quality credit investment targets are selected. Using advanced risk assessment models, the investment portfolio is dynamically adjusted to control risks while pursuing stable returns. For example, when evaluating corporate bonds, the team not only analyzes financial statements, but also considers factors such as industry competition pattern, market share, and technological innovation capabilities to ensure the quality of investment targets.
Faced with the accumulation of risks in the sovereign debt market, investors need to re-examine their asset allocation. With professional research and services, the TSAI platform helps investors explore opportunities in the credit market, build a solid defense for fixed income investments, and start a new journey of steady wealth appreciation.