The threat that rising supply of government debt could destabilize financial markets has intensified, the world’s top central banking advisory body said on Tuesday, calling 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 was on alert for an excess of government debt, which would cause 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 dramatically raise borrowing costs to force countries to abandon fiscal negligence, 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 government debt,” he said when the BIS released 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.”
According to the Institute of International Finance (IIF) group, large budget deficits suggest that countries’ sovereign debt could rise by a third by 2028, reaching $130 trillion.
Elsewhere in its report, the BIS noted growing uncertainty about where global interest rates will stabilize as major central banks begin cuts, but the global economy remains resilient, led by strong growth in the United States. United.
The BIS noted that increased volatility in foreign exchange markets has reduced the incentive for traders to rebuild their positions following the sharp reduction in so-called “carry trades” in August, which triggered disruption in global markets.
Source: Terra
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