• President Milei’s visit to the U.S. this week highlights Argentina’s latest near-bailout, an extreme example of what happens when decades of excessive borrowing and spending lead to repeated defaults, runaway inflation, and collapsed investor confidence. The nation is now staring down the barrel of what is tantamount to a tenth bailout.
• Whilst in a far less extreme situation, in France, the U.K., the U.S., and many other nations, government deficits are ballooning, whilst debt servicing costs are becoming increasingly unaffordable. Governments are proving politically unable – or unwilling – to impose spending restraint.
• In a striking reversal of the orthodox order, it is governments now under pressure while companies are thriving — corporates remain well-capitalised, stock markets are hitting records, and lenders are buoyant on companies’ balance sheets.

This week, Argentinian President, Javier Milei, visited the United States, seeking what amounts to a quasi-bailout for his country’s perennially struggling economy. Argentina has long been a cautionary tale in mismanagement. For much of the past century, successive governments have funded vast public spending through heavy borrowing at high interest rates. The result has been economic catastrophe leading to sky-high inflation and repeated defaults on loans — in fact, Argentina has defaulted nine times since the early 20th century¹ — and today faces yet another crisis.

Milei, a renegade outsider, was elected on a platform of radical reform to stabilise the economy, but his political position has weakened after losing several key local elections to the Peronists, the traditional populist faction in Argentina that has dominated politics for decades. This political wobble has spooked investors: government borrowing costs climbed, the Peso weakened, and emergency measures such as U.S. Treasury intervention in the form of bond purchases may be required to prevent a return to the bad old days.

Whilst Argentina’s plight is severe, it illustrates a broader point; the creeping indebtedness of governments is not an abstract issue. Take France, for example. Its debt-to-GDP ratio now sits at 113%², with an annual deficit approaching 6% of GDP³. Multiple governments have been brought down following attempts to curb spending, most recently the Bayrou administration which collapsed after failing to pass modest reforms such as adjusting pensions, removing a handful of bank holidays and reducing welfare entitlements. Whilst France is not nearly in a situation as severe as Argentina, there is a clear lesson to be learnt about confronting government borrowing and expenditure before the issue becomes all-consuming.

Rise of national debt to GDP in France from 1980 and forecast to 2030. Source: Statista

The United Kingdom presents a similar story. Sir Keir Starmer’s government has already been forced to abandon even the most basic welfare reforms because of political rebellion — changes so minimal they would barely have dented surging public expenditure. Meanwhile, the cost of servicing the UK’s debt now outstrips defence spending by a multiple of two⁴, and the government faces a looming need for tax rises, which will dampen economic growth and achieve only a deferral in the reckoning with state expenditure.

Even the United States, seen as the bedrock of the global financial system, is not immune. Its annual deficit exceeds $1 trillion⁵, well over 6% of GDP⁶, and debt servicing obligations continue to rise, putting stress on global bond markets due to the sheer volume of supply, and straining the Treasury to fund the enormous cost of servicing this debt.

US Federal annual government expenditures on interest payments. Source: US Bureau of Economic Analysis

Shaded areas indicate US recessions

Against this dour backdrop, the corporate world presents a far more optimistic picture. Spreads — the extra yield investors demand to hold corporate debt over government debt — remain exceptionally tight, signalling confidence in businesses. Companies are well-capitalised, and stock markets continue to hit record highs globally as investors see businesses growing and thriving.

In many ways, today’s market landscape is paradoxical. Governments, long perceived as the safest of borrowers, now sit uncomfortably under the scrutiny of bond markets. Their mounting debts and deficits reflect a broader unwillingness — or in some cases an inability — to impose fiscal sense, raising real questions about long-term sustainability. Yet at the same time, the corporate sector is flourishing: balance sheets are healthy, spreads remain tight, and earnings growth continues apace. Investors, in other words, are increasingly treating sovereigns with the caution once reserved for companies, while businesses themselves enjoy a position of relative strength.

Bowmore portfolios

For us, this divergence reinforces the importance of discipline and diversification. We construct portfolios that deliberately span a broad mix of asset classes, regions, and investment styles, ensuring that we are not unduly exposed to the vulnerabilities of any one risk — whether that be sovereign debt markets or otherwise. By adhering to this approach, we aim to capture opportunities where confidence is well-founded, mitigate risks where imbalances are mounting, and ultimately deliver strong risk-adjusted returns with lower volatility over the long term.

The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.

Sources:
1. Council on Foreign Relations
2. Trading Economics
3. Fitch Ratings
4. Institute for Fiscal Studies
5. Trading Economics
6. Federal Reserve Bank of St. Louis
7. Natixis Investment Managers