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Some good news about U.S. sovereign debt

artem-shadrin / Shutterstock
artem-shadrin / Shutterstock

Our BlackRock Sovereign Risk Index (BSRI) -a framework for assessing sovereign risk across 50 countries-shows a recovery in the United States' sovereign risk profile over the past four years. The U.S.'s "Fiscal Space" score component-our measure of fiscal sustainability-has flipped to a sizable positive from a drag, and the country's overall ranking has gradually improved. See the chart below.

This improvement is a product of lower spending, an apparent slowdown in health care cost increases in recent years, low interest rates reducing debt servicing costs and steady, if historically subdued, economic growth. It means the U.S. economy appears to be in much stronger shape than it was during the last presidential election campaign of 2012, and we expect fiscal policy to become less of an economic drag going forward over the near term. The U.S. fiscal turnaround may be fleeting, however. Slower economic growth as aging baby boomers exit the workforce, and growing projected health care and Social Security outlays will likely lead to rising budget deficits and debt-to-GDP levels over the coming decade under current policies, 2016 Congressional Budget Office ( CBO ) projections suggest. The U.S. sovereign risk profile still has room for improvement as well. Each country's BSRI score and ranking is based on four main categories: Fiscal Space (40%), Willingness to Pay (30%), External Finance Position (20%) and Financial Sector Health (10%). Fiscal Space assesses whether a country is on a fiscally sustainable path, while External Finance Position examines how leveraged a country might be to macroeconomic trade and policy shocks outside of its control. Financial Sector Health measures how healthy a country's financial sector is, and Willingness to Pay gauges how able and willing a country is to pay off its debt. The U.S. currently ranks 13th out of the 50 countries we track, an overall ranking unchanged since the same quarter a year ago. According to our most recent quarterly ranking update, it currently scores most highly on Willingness to Pay and weakest in External Finance.

So which countries were the biggest movers in our latest BSRI update?

BSRI interactive graphic Richard Turnill is BlackRock's global chief investment strategist. He is a regular contributor to The Blog .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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