

For all the geopolitical chaos in the world, one thing has never been safer: Lending money to governments.
Why it matters: It’s been well over a decade since defaulted sovereign debt accounted for even 1% of total world debt. Mega-defaults by Argentina and Greece generated plenty of headlines, but ultimately were relatively small by historical standards. As sovereign debt burdens rise around the world, however, these golden days won’t last forever. Government debt that feels perfectly safe today could turn out to be plenty risky tomorrow.
- The most recent data, which includes all sovereign defaults up to the end of 2017, shows that defaulted sovereign debt accounts for just 0.3% of all world public debt. That’s an all-time low, and is down sharply from the high point of 6.2% reached in both 1987 and 1990.
- Puerto Rico is included in the 0.3% figure, as are the other big outstanding sovereign debtors — Sudan, Iraq, and Venezuela.
- The total number of sovereigns in default is also hitting new lows. It now stands at 79, the lowest number since 1981.
Be smart: Sovereign debt won’t look this healthy forever. "Looking ahead, we expect sovereign defaults to pick up again over the next decade," write the banks' David Beers and Jamshid Mavalwalla.
- The biggest risk on the horizon: Italy, which alone has $2.8 trillion in sovereign debt outstanding, or about 4.3% of total world public debt. That’s 11.5 times the $216 billion in default today.
- The bad years in the late 1980s were dominated by defaulted bank loans. Today, countries borrow very little directly from banks. But Italy's banks have more than 10% of their assets — some $425 billion — invested in Italian government bonds.
- The "doom loop," where the sovereign and its banks bring each other down, remains a very real worry.
Go deeper: The podcast I recently recorded with the doyen of sovereign debt restructuring, Lee Buchheit, was easily my favorite episode of 2018.