Market Breakdown

A top-down, fact-based breakdown of the world’s financial markets.

Fixed Income

Last update: 2019.07.29

Latest figure: $108 trillion (end of 2018)

How was this figure evaluated?

Fixed income securities include treasury bills, commercial paper, negotiable certificates of deposit, bonds, debentures and asset-backed securities, issued on either domestic or international markets. These securities arise when a borrower takes on debt from a lender.

Debt can normally be split into the following categories:

  • Household debt: debt taken on by individuals and private citizens, normally used to finance the purchase of houses (mortgages) or cars (auto-loans).
  • Non-financial corporate debt: any corporation (company) that takes on debt which is not classified as a financial institution. These include energy, technology or utility companies (such as E.ON, Apple, PG&E, etc.).
  • Financial corporate debt: any corporation (company) that takes on debt which acts as a financial intermediary between non-financial coporates and the general banking system (investment banks such as JP Morgan, commercial banks such as Natwest, etc.).
  • Government: any debt taken by nation-states such as the UK, United States and China.

The close relationship between debt and fixed income securities means that a good starting point to evaluate the total value of this asset class is done by looking at the global amount of debt in the world.

The world’s leading authority on global debt is the Institute of International Finance, which estimated that the total amount of world debt at the end of 2018 was $244 trillion (IIF, 2019). It’s important to realise though that this figure includes the total amount of household, non-financial corporate and financial corporate, as well as government debt, not all of which are in the form of investable securities in which we are interested in.

For example, in the IIF’s January 2019 “Global Debt Monitor” publication, they state that the $244 trillion figure includes bank loans for housholds and corporations, without indicating that exact split between bank loans and fixed income securities, also known as bonds (IIF, 2019).

In practice, households generally aquire most of their debt in the form of bank loans (such as a mortgage), whilst governments tend to issue most of their debt in bonds. This means that one can set an initial upper and lower boundary for the amount of fixed income products in existance:

Upper bound is Total debt – Household Debt: 244 – 65 = $179 trillion

Lower bound is based on Government Debt only: $65 trillion

Therefore, the remaining task is to estimate the quantity of fixed income securities which can be found in financial and non-financial corporate debt. An initial estimate can be made by using the debt statistics from Bloomberg Terminals. As of mid-2019, the total amount of fixed income securities was $94.6 trillion (Bloomberg, 2019).

Note how close IFF’s and Bloomberg’s estimate for government debt are, at $65.2 trillion and $61.1 trillion respectively with differences arising due to varying measuring and scope methodologies used by each body.

However, based on the Bloomberg data, we now have an estimate for financial bonds at $19.1 trillion and non-financial bonds at $14.4 trillion (combined $33.5 trillion).

This means we can raise the lower bound for the total amount of fixed income products to $94.6 trillion.

We now turn our attention to the Bank of International Settelement’s debt statistics database. The reason we did not start with this data-base right away is because there are certain limitations which require us to use the estimates from above to cross-check the numbers from BIS.

  • The BIS valuation methodology is slightly inconsistent. As explained on their site, each country uses their own valuation method (either market or nominal/face value), and therefore one needs to take their values with a grain of salt.
  • Althought BIS provides total debt security calculations, these are only conducted when the central banks from the relevant countries provide sufficient data. This however is only the case for developed countries, meaning one needs to evaluate the total debt security value of developing nations individually.

However, BIS has conducted a debt security analysis dating all the way back to the 1970s. Keeping the limitations listed above in mind, one can compile the government, financial and non-financial fixed income securities total.

Based on the data by BIS, the total amount of outstanding fixed income securities in the world amounted to $108 trillion. This is within the upper and lower bound as evaluated using the IIF’s and Bloomberg’s datasets.

However there are some clear differences between these three data-sets. For example, the total amount of government bonds, based on BIS figures, is only $50.2 trillion, in comparison to the $65.2 trillion and $61.1 trillion estimates by the IIF and by Bloomberg. Note also that BIS values the total of financial and non-financial securities at $57.8 trillion, in comparison to the $33.5 trillion by Bloomberg. Theses difference arise due to different methodologies used by each institution, however in terms of the total value, the BIS figures are probably the most reliable.