The Age of Painless Government Debt Is Ending
For most governments, the danger is not that one day nobody will buy their bonds. At a sufficiently attractive yield, somebody almost certainly will. The more consequential question is what governments will have to pay them, and how soon they will have to ask again. That question is becoming more important because the market that financed the great expansion of public debt after 2008 is changing. Central banks are reducing their bond holdings, some pension systems need fewer ultra-long-duration assets, and governments themselves are issuing record quantities of securities. The result need not be a dramatic sovereign-debt crisis. It may instead be a slower transition from unusually cheap, patient financing towards a market in which states refinance more often and at more demanding prices. Editorial image generated by the author. For much of the period following the financial crisis, government debt had behaved in a way that seemed to contradict the normal rules of finance. Govern...