The writer is global chief investment officer at State Street Global Advisors
Even as inflation eases, the global economy appears resilient and equity markets grind higher, investors need to remain on the lookout for pockets of vulnerability and risk. The combination of aggressive fiscal stimulus during the pandemic alongside multi-decade highs in interest rates have brought back a degree of anxiety about debt sustainability that we have not seen globally since the 2008 financial crisis.
While we agree that debt levels are worrying, particularly given persistently higher rates, we do not think debt servicing is a particular cause for concern. The primary problem, we believe, is that high levels of government debt coupled with persistently high real yields crowd out other government spending, limit policy flexibility when the next downturn comes and ultimately become a drag on growth.