Data as of Q4 2015 Primary sources: Securities Industry and Financial Markets Association (SIFMA), S&P Capital IQ, A part of McGraw Hill Financial, Bank for International Settlements (BIS), Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries, S&P Dow Jones Indices LLC, a part of McGraw Hill Financial, Investment Company Institute, U.S. Department of the Treasury, Bureau of the Fiscal Service. Secondary: Over twenty-five investment industry, research, and media sources. Percentages and totals are estimated due to rounding. Keys: Other (MM=US Money Market, ABS= US Asset Backed Security, MUNI= US Municipal Bond). Conv/Pref = US Convertible and Preferred. Source date is available by request to contact@7Twelveadvisors.com. Use of this research is permitted for non-commercial purposes only with proper citation as 3Twelve™ Total Bond and inclusion of primary sources.
COMMENTARY: World bond markets experienced a deleveraging overall between 2014 and 2015. In other words, net bond issuance (total issue % value increase/decrease less the underlying index return) was down by over $2 Trillion. Bond types fall in generally three categories: governments, corporates, and mortgages. These categories represent three distinct borrowers—governments, companies, and individuals. Net issuance was generally up for governments, but down for corporates, and mortgages. This tells us that people are doing a fair job of reducing debt; governments are not. Austerity programs effectively died in 2014. Emerging markets (non US, non-developed governments) were the worst offenders with net issuance up 13.7%. Since governments are the largest net borrowers of these three categories their profligacy over-weighs our prudence, crowds out potential credit opportunities for businesses, and keeps interest rates low. When emerging markets lead the way in new indebtedness it eventually becomes everyone’s problem. China was the worst offender. According to Fitch Ratings Inc. China’s total credit rose to almost 200% of GDP, and the data from BIS corroborate explosive debt increases. Finally, a repeat reminder regarding the baffling (to some) resistance of interest rates to rise. It took the 20-Year US Treasury bond thirty years (from roughly 1950-1980) to increase only 10%. Interest rates traditionally rise slowly and gradually.
About the 3Twelve™ Total Bond map:
The 3Twelve™ Total Bond map may be the most complete compilation of world bond totals available. We are delighted to publish this exclusively with LearnBonds.com — the most comprehensive source for fixed-income. “3” stands for the three types of bonds–government, corporate, mortgage. “Twelve” stands for the major bond categories.
Maintaining accurate world bond totals is virtually impossible for many reasons: 1) Bonds are the largest investment asset class and have almost double the monetary value of stocks, 2) Bonds do not have a perpetual life like stocks, so values constantly change, 3) Individual bond issues count in the millions, whereas stocks count only in the thousands, 4) Most bonds are privately traded thus most transactions are never published on any exchange, 5) Even global clearinghouses like the Bank for International Settlements stated that they recently changed their calculation methodology because of difficulty of accurate estimating, 6) New issues of bonds are published, redemptions generally are not, 7) Bonds, Debt, and Loans are often mis-categorized, e.g., debt securities are always loans, but loans are not always debt securities, and 8) The primary sources that we cite report accurate data, however, secondary sources such as investment firms, banks, traders, investment advisors, and the media often unintentionally misinterpret the data. Because of this, we have at least triple-verified most values using over twenty authoritative sources.
Notes: “Other” is made up of asset backed bonds, US municipal bonds, and money market funds. These are very different types of securities, but since municipal bonds are found just in the US, money markets are not effectively bonds as a security, and asset backed securities are so varied in structure, we by default count them together.
Andy Martin, 8/15/16 (special thanks to Jake Dowler, research assistant, 7Twelve Advisors, LLC, and Branimir Gruić, Senior Statistical Analyst, Bank for International Settlements)