LONDON (Reuters) – The threat that rising public debt supplies will destabilize financial markets has intensified, the world’s top central bank advisory body said on Tuesday, as it called on authorities to act quickly to avoid economic damage.
Claudio Borio, head of the monetary and economic department at the Bank for International Settlements (BIS), said he is on alert for an excess of government debt, causing disruptions in the bond market that could spread to other assets.
And while markets have not yet suffered so-called “bond vigilante” attacks, in which debt investors drastically increase borrowing costs to force countries away from fiscal neglect, policymakers should not wait for that to happen. , he said.
“Financial markets are starting to realize that they will have to absorb these growing volumes of public debt,” he said when the BIS published its latest quarterly report.
“It takes time for authorities to adjust their policies, and if they wait for markets to wake up, it will be too late.”
Large budget deficits suggest that countries’ sovereign debt could increase by a third by 2028, reaching $130 trillion, according to the Institute of International Finance (IIF) group.
Continues after advertising
Elsewhere in its report, the BIS noted increasing uncertainty over where global interest rates will settle as major central banks initiate cuts, but the global economy remains resilient, driven by strong US growth.
The BIS noted that greater volatility in foreign exchange markets reduced the incentive for traders to rebuild their positions following a sharp reduction in so-called “carry trades” in August, which caused disruptions in world markets.
