Aurelia Butler

Global bond markets posted a powerful rebound in the first fortnight of 2023, fanning investors’ hopes that last year’s fixed-income retreat is over.Bonds are on track for their best January performance in more than three decades, spurred by a growing conviction that inflation has peaked on both sides of the Atlantic. The Bloomberg Global Aggregate index, a broad gauge of global fixed income, has delivered a 3.1 per cent return so far this month. If that continues for the rest of January it will be the biggest rise logged in the first month of the year in records going back to 1991. The index fell by more than 16 per cent in 2022.“It’s like night and day,” said Richard McGuire, a fixed-income strategist at Rabobank. “Last year was historically bad but there’s every sign that this one is going to be much better for bond investors. Growth is slowing, inflation is decelerating and we are confident that the peak in policy rates has already been priced.”Investors are betting that the Federal Reserve and European Central Bank will move more slowly this year in their efforts to tame rising prices, after both central banks helped to capsize debt markets last year by raising interest rates at an unprecedented pace.At the same time, the spectre of a looming recession could damp appetite for riskier assets such as stocks and instead draw big flows of money to the safety of highly rated government debt.The gains — driven by a big rally in long-term government debt — are an early vindication for fund managers who in December favoured bonds in their portfolios relative to other asset classes for the first time since 2009, according to Bank of America’s closely watched monthly investor survey. The 10-year US Treasury yield has fallen to 3.46 per cent, from 3.83 per cent at the end of 2022, reflecting a surge in price. Germany’s 10-year yield, a benchmark for the euro area, has dropped from 2.56 per cent to 2.10 per cent in the same period.Data in the first week of January showing that eurozone inflation fell faster than expected last month as energy prices dropped, helping trigger the global bond rally. Meanwhile, confirmation this week that US inflation dropped to its slowest pace in more than a year at 6.5 per cent in December helped to cement the gains.Investors started the year already betting that the Fed would begin cutting interest rates later in 2023 as the US economy slows, despite repeated statements by central bank officials that borrowing costs may have to remain high for some time to curb inflation.But even if rate cuts do not materialise, some investors argue that waning inflation diminishes the uncertainty around further large increases, which should benefit longer-term bonds as well as riskier types of debt.“The Fed is eventually going to get to a plateau,” said Steven Abrahams, head of strategy at Amherst Pierpont. “At a certain point this year, major shifts in Fed funds will be off the table, which should materially reduce interest rate volatility. And as rate volatility comes down, risk assets, mortgage-backed securities and corporate credit should do well.”

There is also a widespread hope that bonds will regain their traditional role as a safe place to shelter from the coming economic downturn and should gain if equity markets suffer. That would mark a break with 2022’s synchronised sell-off when bonds dropped even though the MSCI All-World stock index shed almost 20 per cent.“It is very rare to have a big down year for both stocks and bonds, and last year was the first time since 1974 where you had both down,” said David Kelly, chief global strategist at JPMorgan Asset Management. “You typically bounce the following year, and I think that’s what is happening now. It is not the best of times, but it is not the worst of times either.”Others detect a whiff of complacency in the bond market resurgence. The faith in markets that rates are nearing their peak, and cuts are on the way, is at odds with central banks’ newfound insistence that they will do whatever it takes to quell inflation, according to Mark Dowding, chief investment officer at BlueBay Asset Management.“We are doubtful that the relatively strong market conditions at the start of 2023 can be sustained for too long,” Dowding said, adding that he is “concerned by a narrative in markets that we don’t need to listen to central banks, as they don’t matter very much”. “This may seem complacent and we learned in 2022 just how quickly underlying conditions can change.” More

NEW YORK (Reuters) -Wall Street’s biggest banks stockpiled more rainy-day funds to prepare for a possible recession, while showing caution about forecasting income growth in an uncertain economy and as higher rates increase competition for deposits.The outlook for big U.S. banks has been clouded by the Russia-Ukraine conflict and fading economic stimulus measures. Higher borrowing costs as the U.S. Federal Reserve hikes rates have softened demand for mortgages and car loans while raising the cost of deposits for banks.JPMorgan Chase & Co (NYSE:JPM), Wells Fargo (NYSE:WFC) & Co and Bank of America Corp (NYSE:BAC) gave either disappointing or uncertain outlooks for net interest income (NII), or the money banks bring in from interest payments, which is impacted by the amount they have to pay customers to keep deposits in their banks. “The U.S. economy currently remains strong, with consumers still spending excess cash and businesses healthy,” said JPM Chief Executive Officer Jamie Dimon, although he said he didn’t yet know “the ultimate effect of the headwinds coming.” The bank flagged a modest deterioration in its macroeconomic outlook, “reflecting a mild recession in the central case.”JPM, Bank of America, Citigroup Inc (NYSE:C) and Wells Fargo reported profits ranging from up 6% to down 50%. Strength in trading helped offset a slump in investment banking, while interest rate hikes by the U.S. Federal Reserve helped income.”Today’s bank earnings were solid, with net interest income driving earnings, credit reserves significantly increasing year over year, and investment banking fees remaining low – all largely reflecting the interest rate and economic environment,” said KPMG US National Sector Leader for Banking and Capital Markets Peter Torrente. JPM profit rose 6% on trading strength, and said it would resume share buybacks. Bank of America reported a 2% rise in profits as higher rates boosted income. However, Citi reported a 21% fall in profits, with investment banking taking a hit. Wells Fargo reported that its profit fell 50% as it racked up $3 billion in costs. Shares were higher with JPM up 2.5%, Wells up 3.5%, Bank of America up 2.5% and Citi up 1.8%. “What people are actually realizing is that the banks are probably going to continue to generate quite healthy returns over the course of 2023,” said Richard Ramsden, Goldman Sachs’ lead analyst on banks, despite higher rates and a slowing economy weighing.HIGHER-COST DEPOSITS Net interest income was one area singled out to come under pressure this year. JPM’s Dimon said there was more competition for deposits as higher rates was causing customers to migrate to investments and other cash alternatives meaning the bank was “going to have to change saving rates.” Bank of America said that its mix of global banking interest-bearing deposits had increased and it was “paying higher rates on those deposits to retain them.”Ramsden said the banking industry is witnessing a trend of deposits going into treasury markets directly or money market funds that offer higher yields.”You have to assume that some of these trends are going to persist,” Ramsden said.UBS analysts in a note said that JPM’s guidance on NII of $74 billion, excluding markets, was below expectations. JPM in a conference call said the outlook for NII was particularly uncertain. Bank of America said the outlook for interest rates was too uncertain to forecast NII for the year. Wells Fargo forecast NII up 10% this year versus 2022, which was below Refinitiv estimates of 16% growth. Citi in its investor presentation forecast NII of around $45 billion for 2023 versus $43.5 billion excluding markets in 2022.The four banks set aside a total of around $4 billion in funds to prepare for soured loans: JPM set aside $1.4 billion, Wells Fargo $957 million, Bank of America $1.1 billion and Citi $640 million. Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) report next week. M&A, TRADING Banks have been hit by a slump in mergers, acquisitions and initial public offerings, leading to job cuts by some banks like Goldman Sachs. JPM’s investment banking unit’s saw revenues down 57% while Bank of America’s investment banking fees more than halved in the quarter. Those banks continued to add staff overall. JPM’s trading revenue, however, gained from market volatility as investors repositioned bets to navigate a high interest rate environment.Meanwhile, consumer businesses were a key focus in banks’ results. Household accounts have been propped up for much of the pandemic by a strong job market and government stimulus, and while consumers are generally in good financial shape, more are starting to fall behind on payments.”The consumer still remains in pretty good shape,” said Bank of America’s Chief Financial Officer Alastair Borthwick. “There’s a lot of pent-up demand,” especially for travel, he said.  More

WASHINGTON (Reuters) – Republicans who control the U.S. House of Representatives wasted no time this week using their new majority to pass political messaging bills that appeal to conservative voters on hot-button issues, but often involved more hyperbole than substance.After a historic struggle to elect Kevin McCarthy as their speaker, House Republicans used their first legislative week to pass bills on taxes, abortion and energy security that have little to no chance of getting through the Democratic-controlled Senate or being signed into law by Democratic President Joe Biden.The bills are meant to provide a political benefit, as Republicans seek to fulfill 2022 campaign promises and formulate plans to capture the Senate and White House in 2024. “The American public made a decision, where they fired the Democrats and they put us in charge,” McCarthy told reporters.”We continue to keep that commitment,” he said. “You’ll watch it week after week after week.”Republicans also set up committees to investigate Biden’s Justice Department and scrutinize U.S.-China competition. The use of messaging bills is an age-old tactic embraced by Republicans and Democrats alike. In the run-up to the November midterm elections, House Democrats approved legislation on abortion rights and election reform, knowing the bills would never pass the narrowly split Senate. Democrats characterized the legislation as an effort to protect the wealthy, obstruct federal probes of Republican former President Donald Trump and restrict abortion access. “That’s this week in extreme MAGA-Republican land,” said House Democratic leader Hakeem Jeffries. Messaging bills could play a central role as the Republican Party girds itself for political showdowns over spending and the debt ceiling. “The real purpose for the House Republican conference is to hold down spending and try to limit the debt,” said Republican strategist Charles Black. “All that’s going to take negotiations with the Senate and the White House.” “But I suspect that they feel the best way to negotiate is to take a hard-line position and pass it through the House before you go negotiate,” he added. IRS, CHINA, ABORTIONThe week began with Republicans taking aim at Democratic funding for the Internal Revenue Service intended to help reclaim an estimated $500 billion in annual unclaimed taxes. The House, in a party-line vote, passed a bill to rescind $72 billion in new IRS funding last year, which No. 2 House Republican Steve Scalise said would target people earning less than $400,000 and break Biden’s promise not to raise taxes on that income group.The claim, repeated widely by Republicans, was based on a Congressional Budget Office report that reached the opposite conclusion, saying audit rates for taxpayers with income less than $400,000 would actually remain close to recent levels.Also missing from Republican rhetoric was a separate CBO finding that said their bill would add more than $114 billion to the federal deficit. On Thursday, 113 Democrats joined Republicans in voting on a bill that sponsors said would ban sales of oil to Beijing from the U.S. Strategic Petroleum Reserve, even though oil experts said it would have little effect.The bill is part of a larger strategy by Republicans to blame Democratic “green” energy policies for higher U.S. gasoline prices and to accuse Biden of trying to compensate by draining the nation’s emergency oil reserve and selling some of it China.In March, Biden announced a record sale of 180 million barrels from the reserve.Chinese buyers purchased some of the SPR oil directly and more found its way to China through the global market. Industry experts said the restrictions were unlikely to stop oil from reaching China on the global market.”They can establish who the designated buyers are. But they can’t follow where the barrels go after that,” said Kevin Book, an analyst at the nonpartisan, Washington-based research group ClearView Energy Partners LLC. The legislation also does not address U.S. oil industry exports to China, which dwarf SPR volumes as a result of 2015 reforms that Republicans supported. Another Republican messaging bill sought to protect the welfare of infants born during abortion procedures, a rare occurrence that experts say legislators have long used to underscore their opposition to abortion. Experts say there are no reliable statistics on so-called born-alive abortions. Data compiled by the Centers for Disease Control and Prevention estimate that fewer than 1% of abortions in 2020 took place after 20 weeks of pregnancy. After the U.S. Supreme Court’s decision to overturn national abortion rights mobilized female voters against Republicans in November, the abortion birth legislation came under fire from within the party. “We’re only playing lip service to the pro-life movement,” said Representative Nancy Mace of South Carolina, who advocated instead for expanded access to birth control but still voted for the bill. More

Criticised by some as a talking shop for the jetset that merely adds to the world’s carbon footprint, the forum insists it has the power to bring decision-makers together in a world facing multiple crises amid growing geopolitical mistrust.”We are all stuck in a crisis mindset,” WEF executive chairman and founder Klaus Schwab told the pre-meeting news conference of a world grappling with the Ukraine war, climate change and simultaneous energy and food supply crunches.The last in-person Davos winter gathering was in 2020, just days before the COVID-19 outbreak was declared a global health emergency. The 2021 event was held virtually and last year’s was shifted from January to May after a spike in infections.”Davos should help to shift that mindset,” Schwab said of a week-long set of discussion panels, informal gatherings and events under the banner of “Cooperation in a Fragmented World”.While the Russian delegation will be conspicuous by its absence, organisers hailed a record turnout in terms of the number and diversity of participants, with expectations of a “high-level” Chinese presence. Fifty-two heads of state and government will show up next to 56 finance ministers, 19 central bank governors, 30 trade ministers and 35 foreign ministers. Heads of the United Nations, International Monetary Fund and World Trade Organisation will be among 39 leaders of international agencies.The upmarket ski resort will host its biggest ever business participation, with 600-plus CEOs among 1,500 business leaders that include the highest ever number of female executives.Discussions are due to focus on short-term challenges like how to avoid the risk of a global recession in 2023 and how to ensure a failing global effort to tackle climate change is not set back even further by the energy crunch exacerbated by the Ukraine war and sanctions on Russia.Organizers said that Ukraine, which dominated last year’s forum, would send another high level delegation and that there would be several sessions related to the war. As advanced economies around the world struggle with tight labour markets, there will be debate on the importance of re-skilling workforces, generating properly remunerated jobs and overcoming shortfalls in gender parity and racial equity. More

NEW YORK (Reuters) – Some U.S. investors are looking abroad to capture better stock returns in the coming months, betting European and other international stocks hold more enticing valuations after a long period of U.S. dominance.U.S. stocks have rebounded to start the year after a rough 2022, but still have lagged their international counterparts. Europe’s STOXX 600 index has gained some 17% since the end of the third quarter, versus 11% for the U.S. benchmark S&P 500. MSCI’s gauge of global stocks excluding the U.S. has risen more than 20% over that time.European stocks have benefited as a mild winter has so far helped the region avert a feared energy crisis, investors said. Moderating commodity prices have helped, as has the re-opening of China’s economy and a weaker dollar; some expect the strength to continue.“Relatively speaking, we have got more money now chasing better opportunities outside the U.S., which was not the case the last several years,” said Martin Schulz, head of the international equity group at Federated Hermes (NYSE:FHI).Federated Hermes said this week it is shifting from a “modestly bearish” view on stocks to a “modestly positive” one, entirely by adding to international markets.U.S. stocks have long held sway over international peers. The S&P 500 rose over 460% from lows during the great financial crisis in March 2009 through last year, compared with a 170% gain for Europe’s STOXX over that time.That period largely coincided with rock-bottom interest rates, a backdrop that favored U.S. stock indexes which are far more heavily weighted in technology shares than stock gauges in Europe. The tech sector amounts to 26% of the S&P 500. The group is only about 7% in the STOXX 600, which is far more heavily geared toward financial and industrial shares.But the playing field leveled dramatically over the last year, as central banks globally raised interest rates to fight inflation. Higher rates tend to particularly pressure the valuations of tech and other high growth stocks while potentially benefiting banks and other value shares heavily weighted in Europe.”One of the secular elements that has helped U.S. equities was unconventional monetary policies, and those have come to an end,” said Alessio de Longis, senior portfolio manager for Invesco Investment Solutions in New York. The firm last month rotated more into international equities as it increased its overall stock exposure, de Longis said. GRAPHIC: US vs European stocks (https://fingfx.thomsonreuters.com/gfx/mkt/movakjqeqva/Pasted%20image%201673634725531.png) International stocks were recently touted by investor Jeffrey Gundlach of DoubleLine Capital and BofA Global Research, which projected global stocks would “crush” their U.S peers in 2023.Even with their recent strength, Europe’s STOXX still trades at a hefty discount, with a forward price-to-earnings ratio of 12 against a P/E of about 17 for the S&P 500, according to Refinitiv Datastream. That valuation gap is close to its widest ever and is over twice its historic average.“Every single metric that you can follow from a valuation perspective shows that international stocks are historically cheap versus the U.S.,” said Brent Schutte, chief investment officer at Northwestern (NASDAQ:NWE) Mutual Wealth Management Company.Another lift for international stocks has come from the recent weakness in the dollar, which is down some 9% since the end of the third quarter after a huge run. The weaker greenback benefits U.S. investors when they convert foreign profits back into their home currency, and some investors believe the dollar could keep sliding if it appears the Fed is growing closer to pausing its rate increases.Some investors think U.S. stocks will soon resume their dominance over equities linked to other regions. Since 2012, the United States has tended to outperform rest-of-world equities, with an average difference of 1.7 percentage points over a typical 50-day window, according to Nicholas Colas, co-founder of DataTrek Research. “As much we can see the merits of lower valuation non-U.S. equity markets, their recent outperformance says investors should be cautious in chasing the recent rally,” Colas said in a note this week. A widely expected global recession could be one factor that sends investors back into U.S. stocks, which many see as a relative haven during times of economic uncertainty, investors said. Buying international stocks could be a “complement” to the opportunity domestically, said Mona Mahajan, senior investment strategist at Edward Jones. “The U.S. markets haven’t yet rebounded as much and so I think there is still a fundamental opportunity in the U.S. to play some catch up there,” Mahajan said. More

Today’s top storiesChina is changing tack and taking “golden shares” in tech giants such as Alibaba and Tencent instead of doling out heavy fines and imposing sanctions in regulatory crackdowns. The change of approach means the Communist party can remain involved in the businesses, particularly the content they broadcast to millions of Chinese people.There was some welcome good news today for the UK economy, which grew unexpectedly in November by 0.1 per cent, boosted by football fans’ spending during the World Cup and bucking forecasts of a contraction. However, in the three months to November the economy shrank 0.3 per cent as inflation and rising borrowing costs hit businesses and households, highlighted by data showing mortgage costs rising to the highest proportion of income since the financial crisis.In the latest manifestation of the crypto crisis, 20 per cent of jobs are being cut at Crypto.com. The collapse of Bahamas-based crypto exchange FTX has sparked fresh debate in the EU about whether its regulation of digital assets could protect the public against similar crises. The trial of FTX’s founder Sam Bankman-Fried is a big test for Wall Street’s top cop Damian Williams.For up-to-the-minute news updates, visit our live blogGood evening,Wall Street banks may have enjoyed a golden period of late thanks to interest rate rises but, as fourth-quarter reporting season gets under way, signs are growing that there could be a reckoning in 2023.Banks have been able to charge borrowers more for loans without raising the rates they pay depositors by as much, boosting their net interest income — the difference in what they pay on deposits and what they earn from loans and other assets. But with US Federal Reserve windfalls likely coming to an end, some are looking to cut costs and lay off staff. The standout example so far is Goldman Sachs, which has announced “brutal” job cuts and embarked on its biggest cost-cutting drive since the global financial crisis. Ahead of results next Tuesday, it revealed today that its new fintech unit had notched up $3bn in losses since 2020.Today’s flurry of Q4 statements painted a mixed picture of the sector, with some results better than analysts had expected.JPMorgan Chase, the largest US lender, reported a better than anticipated 6 per cent rise in net income to $11bn or $3.57 per share, helped by a gain of almost $1bn from the sale of its shares in Visa. But, in what analysts called a “warning shot for the entire industry”, its caution that net interest income for 2023 would be lower than expected sent its shares downwards.Bank of America’s net income also increased more than expected, hitting $7.1bn or 85 cents a share, boosted by a stellar performance from its lending business.Profits at Wells Fargo however fell by half after being hit by multibillion dollar fines for mismanagement of mortgages, car loans and bank accounts. Net income was $2.9bn, including $3.3bn of operating losses. Earnings were 67 cents a share and total revenue fell to $19.6bn from $20.9bn last year. America’s fourth-biggest bank by assets is pulling back from the home loans industry it once dominated.Citigroup profits fell by more than a fifth as investment banking slowed, but net income of $2.5bn or $1.16 a share was in line with analysts’ estimates. The bank is in the middle of a costly restructuring programme, following scrutiny from regulators and years of underperformance.Morgan Stanley, whose business, like Goldman’s, skews more towards investment banking, trading and asset management, also reports next Tuesday, but has already announced the departure of CEO contender Jonathan Pruzan.This year could also be a tough one for asset managers as they cut costs and make tough decisions about where to invest.In an internal memo seen by the FT, BlackRock’s chief executive Larry Fink said “negative markets had a substantial impact” on its results, hitting revenues and profits in an operating environment “unlike anything we’ve seen in decades”. The world’s largest asset manager plans to axe 500 jobs or 2.5 per cent of its global workforce of almost 20,000 people. Assets under management dropped from a record $10tn a year ago to $8.6tn, while revenues fell by 15 per cent to $4.3bn.Need to know: UK and Europe economySweden’s state-owned mining company LKAB said it had discovered Europe’s largest deposit of rare earth metals north of the Arctic Circle in the province of Lapland. The find could give a huge boost to the transition to green energy and reduce dependence on China.The green transition is exposing differences between the Fed and the European Central Bank on whether to take an active role in tackling climate change. Read our explainer.Meanwhile, Brussels has greenwashing in its sights after finding half of the environmental claims used to advertise products in the EU are misleading or unfounded. The FT editorial board said the EU’s pioneering carbon border tax was a step forward but could be tricky to implement.Need to know: Global economyUS inflation fell to 6.5 per cent in December, the lowest level in more than a year. The drop paves the way for the Fed to ease up on its programme of interest rate rises by switching to increases of 0.25 per cent. The easing in inflation is also helping consumer sentiment start to tick upwards.

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Chinese exports had their sharpest fall in three years in December, according to official data. Full-year gross domestic product figures on Tuesday are expected to miss a 5.5 per cent target that was already the lowest such figure in decades.IMF chief Kristalina Georgieva warned that global growth would “bottom out” this year before speeding up in 2024. Georgieva, who said last week that a third of the global economy would tip into a recession this year, maintained that a worldwide downturn could still be avoided. Emerging market governments have raised more than $40bn on international bond markets so far this year, as signs grow that inflation in the US and the eurozone has peaked and hopes arise that China will benefit from its reopening.Need to know: businessOne of the biggest US proxy fights for years was sparked by activist investor Nelson Peltz trying to force his way on to the board of Walt Disney after it declined to make him a director. The battle pits Peltz against CEO Bob Iger and new chair Mark Parker, a Nike veteran.Saudi Aramco, the world’s biggest crude producer, is doubling down on oil production, even as the world looks to phase out fossil fuels. Our Big Read explains its strategy. Green campaigners meanwhile have seen red over the appointment of Abu Dhabi’s oil chief as president of the COP28 climate summit.

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British Gas owner Centrica cemented its position as one of the big winners from the surge in energy prices as it predicted an eightfold rise in earnings.Taiwan’s TSMC, the world’s largest manufacturer of chips, reported strong earnings in the fourth quarter but cautioned that 2023 would only produce “slight growth” because of the industry downturn. Science round-upLast year was the fifth warmest on record with average temperatures nearly 1.2C above pre-industrial trends. Copernicus, the EU’s earth observation programme, also said that concentrations of polluting greenhouse gases carbon dioxide and methane had reached their highest points in the satellite record.Scientists are researching the effects of climate change on the wavy jet stream that has fuelled record warmth in Europe and torrential rain and snow in the western US.The hype around quantum computing generated by recent research from China is receding over its lack of practical uses, writes US west coast editor Richard Waters. Quantum computing is harder than herding kittens is the view of innovation editor John Thornhill. Machine learning used to help discover new medical treatments could however be more promising. Covid vaccine maker BioNTech has bought UK AI start-up InstaDeep for £562mn.US regulators approved a drug that could help the world’s 50mn sufferers of Alzheimer’s by slowing the rate of cognitive decline. Lecanemab is one of the first new treatments in decades but comes at a high cost: $26,500 per year. Commentator Anjana Ahuja cautions that it may end up representing a triumph of hope over evidence.Positive early trial results for CanSinoBio’s mRNA Covid vaccine could help China as it grapples with soaring case rates and hospitalisations.Some good newsUganda has declared the end of an Ebola outbreak four months after the first case was confirmed, thanks to the “magic bullet” of community action.

Anti-Ebola advocacy vans were used in Uganda as part of the public health effort to contain the virus © Abubaker Lubowa/Reuters

Something for the weekendThe FT Weekend interactive crossword will be published here on Saturday, but in the meantime why not have a go with today’s cryptic crossword? More

LONDON (Reuters) – Central bank rate rises could land global borrowers with $8.6 trillion in extra debt servicing costs in coming years, S&P Global (NYSE:SPGI) estimated on Friday, warning of a slowdown in economic activity as a result. Major central banks have delivered a record 2,700 basis points of rate hikes in 2022 to stamp out high inflation while concerns have been growing about higher borrowing costs sparking a global recession. “Higher interest expenses are already straining less-creditworthy governments and corporates, and lower-income households,” S&P Global, a financial intelligence company that includes a debt ratings service, said in a report.Businesses’ required returns on new projects were rising along with debt costs, S&P Global added, in a trend that would “dampen future business activity volumes”. “Rising interest rates and slowing economies are making the debt burden heavier,” S&P Global added in the report launched ahead of next week’s World Economic Forum in Davos, Switzerland. “To mitigate the risk of a financial crisis, trade-offs between spending and saving may be needed.”S&P Global based its estimate of an $8.6 trillion extra interest bill by applying a three percentage point rate increase to $300 trillion worth of global debt. Around 65% of the extra debt service cost would be paid on fixed-rate bonds and loans as they were refinanced “over time,” the report said. It also projected that the global debt-to-GDP ratio – a marker of leverage risk in the financial system – could rise in a worse case scenario to 391% by 2030, from 349% in June 2022. S&P Global is adding its voice to a chorus of warnings from policymakers and multilateral institutions about the impact of higher debt servicing costs on fragile economies and companies, as well as struggling households. Last month, World Bank President David Malpass said at a Reuters conference that the world’s poorest countries now owed $62 billion in annual debt service costs to official creditors, an increase of 35% over the past year, sparking concerns about a disorderly default trend. In September, the Vulnerable Group of 20 (V20), a group of 55 economies exposed to the fallout from climate change, forecast their debt interest bill would rise to a point where they would struggle to safeguard their populations from natural disasters. More