The World’s Largest Bond Markets
This was originally posted on the Advisor Channel. Sign up to the free mailing list to get great insights into the financial markets that help advisors and their clients.
In 2022, the global bond market $133 trillion.
As one of the largest capital markets in the world, debt securities have grown sevenfold in the last 40 years. Fueling this growth is the sale of government and corporate debt in major economies and emerging markets. Over the past three years, China’s bond market has grown by 13% annually.
Based on estimates from the Bank for International Statements, this graphic shows the world’s largest bond market.
ℹ️ The total debt figure here includes both HOME and international debt securities in each particular country or region. The BIS says that international debt securities are issued outside the domestic market of the country where the borrower lives and cover eurobonds as well as foreign bonds, but exclude negotiable loans.
Ranking: World’s Top Bond Markets
Appreciated by more $51 trillionthe US has the largest bond market in the world.
Government bonds make up the majority of its debt market, with more than $26 trillion of securities outstanding. By 2022, the Federal government has paid $534 billion in interest on this debt.
China is second, at 16% of the world total. Local commercial banks hold the largest share of its outstanding bonds, while foreign ownership remains relatively low. Foreign interest in Chinese bonds eased in 2022 amid geopolitical tensions in Ukraine and lower yields.
Bond Market Rating | Country / Region | Total Debt Outstanding | Part of the Total Bond Market |
---|---|---|---|
1 | 🇺🇸US | $51.3T | 39% |
2 | 🇨🇳 China | $20.9T | 16% |
3 | 🇯🇵 Japan | $11.0T | 8% |
4 | 🇫🇷 France | $4.4T | 3% |
5 | 🇬🇧 United Kingdom | $4.3T | 3% |
6 | 🇨🇦 Canada | $4.0T | 3% |
7 | 🇩🇪 Germany | $3.7T | 3% |
8 | 🇮🇹 Italy | $2.9T | 2% |
9 | 🇰🇾 Cayman Islands* | $2.7T | 2% |
10 | 🇧🇷 Brazil* | $2.4T | 2% |
11 | 🇰🇷 South Korea* | $2.2T | 2% |
12 | 🇦🇺 Australia | $2.2T | 2% |
13 | 🇳🇱 Netherlands | $1.9T | 1% |
14 | 🇪🇸 Spain | $1.9T | 1% |
15 | 🇮🇳 India* | $1.3T | 1% |
16 | 🇮🇪 Ireland | $1.0T | 1% |
17 | 🇲🇽 Mexico* | $1.0T | 1% |
18 | 🇱🇺 Luxembourg | $0.9T | 1% |
19 | 🇧🇪 Belgium | $0.7T | >1% |
20 | 🇷🇺 Russia* | $0.7T | >1% |
*Represents countries where total debt securities are not reported by national authorities. These numbers are the sum of domestic debt securities reported by national authorities and/or international debt securities compiled by BIS.
Data as of Q3 2022.
As shown in the table above, Japan has the third largest debt market. Japan’s central bank holds a large portion of its government bonds. The central bank’s holdings hit a record 50% as it revised its yield curve control policy introduced in 2016. The policy was designed to help boost inflation and keep interest rates from fall As inflation starts to rise in 2022 and bond investors start selling, it will need to increase its yield to stimulate demand and liquidity. The adjustment sent shockwaves through financial markets.
In Europe, France is home to the largest bond market in $4.4 trillion in total debt, surpassing the United Kingdom by nearly $150 billion.
Banks: A Major Buyer in Bond Markets
Like central banks around the world, commercial banks are the main players in the bond markets.
In fact, commercial banks are among the top three buyers of US government debt. This is because commercial banks reinvest client deposits into interest-bearing securities. This often includes US Treasuries, which are highly liquid and one of the safest assets in the world.
As we can see in the chart below, the banking sector often exceeds the overall GDP of the economy.
While interest rates have been rising sharply since 2022, the price of bonds has been lowered, due to their inverse relationship. This raises questions about what kind of bonds are held by banks.
In the US, commercial banks hold $4.2 trillion of Treasury bonds and other government securities. For large US banks, these assets account for around 24% of assets on average. They make up an average of 15% of assets for small banks in 2023. Since the middle of 2022, small banks have reduced their bond holdings due to rising interest rates.
As higher rates ripple across the banking system and broader economy, it could expose additional strains to global bond markets that have expanded rapidly in an era of dovish monetary policy and ultra-low interest rates.