Financial and Monetary Systems

Ranked: The largest bond markets in the world

In Europe, France is home to the largest bond market at $4.4 trillion in total debt

In Europe, France is home to the largest bond market at $4.4 trillion in total debt Image: Pexels/Monstera

Dorothy Neufeld
Author, Visual Capitalist
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Financial and Monetary Systems

  • The US has the largest bond market in the world, valued at over $51 trillion, according to estimates from the Bank for International Settlements.
  • Commercial banks are among the top buyers of US government debt.
  • But the price of bonds has been pushed down as interest rates have risen, leading to questions about what type of bonds banks hold.
The US has the largest bond market in the world.
The US has the largest bond market in the world. Image: Visual Capitalist.

The largest bond markets in the world

In 2022, the global bond market totaled $133 trillion.

As one of the world’s largest capital markets, debt securities have grown sevenfold over the last 40 years. Fueling this growth are government and corporate debt sales across major economies and emerging markets. Over the last three years, China’s bond market has grown 13% annually.

Based on estimates from the Bank for International Settlements, this graphic shows the largest bond markets in the world.

Ranked: the world’s top bond markets

Valued at over $51 trillion, the U.S. has the largest bond market globally.

Government bonds made up the majority of its debt market, with over $26 trillion in securities outstanding. In 2022, the Federal government paid $534 billion in interest on this debt.

China is second, at 16% of the global total. Local commercial banks hold the greatest share of its outstanding bonds, while foreign ownership remains fairly low. Foreign interest in China’s bonds slowed in 2022 amid geopolitical tensions in Ukraine and lower yields.

Bond market size by country.
The world's biggest bond markets. Image: Visual Capitalist.

As the above table shows, Japan has the third biggest debt market. Japan’s central bank owns a massive share of its government bonds. Central bank ownership hit a record 50% as it tweaked its yield curve control policy that was introduced in 2016. The policy was designed to help boost inflation and prevent interest rates from falling. As inflation began to rise in 2022 and bond investors began selling, it had to increase its yield to spur demand and liquidity. The adjustment sent shockwaves through financial markets.

In Europe, France is home to the largest bond market at $4.4 trillion in total debt, surpassing the United Kingdom by roughly $150 billion.

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Banks: a major buyer in bond markets

Like central banks around the world, commercial banks are key players in bond markets.

In fact, commercial banks are among the top three buyers of U.S. government debt. This is because commercial banks will reinvest client deposits into interest-bearing securities. These often include U.S. Treasuries, which are highly liquid and one of the safest assets globally.

As we can see in the chart below, the banking sector often surpasses an economy’s total GDP.

Banking Sector Financial Assets. bond markets
The size of a country's banking sector often surpasses the economy’s total GDP. Image: Financial Stability Board

As interest rates have risen sharply since 2022, the price of bonds has been pushed down, given their inverse relationship. This has raised questions about what type of bonds banks hold.

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Beyond GDP: read the full transcript here

In the U.S., commercial banks hold $4.2 trillion in Treasury bonds and other government securities. For large U.S. banks, these holdings account for almost 24% of assets on average. They make up an average 15% of assets for small banks in 2023. Since mid-2022, small banks have reduced their bond holdings due to interest rate increases.

As higher rates reverberate across the banking system and wider economy, it may expose further strains on global bond markets which have expanded rapidly in an era of dovish monetary policy and ultra-low interest rates.

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Financial and Monetary SystemsBanking and Capital MarketsChina
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