Financial Times
March 6, 2011
Government bonds have long been one of the safe havens of choice for investors. US treasuries or German bunds have been references for the so-called risk-free rate where the chance of default is zero.
But over the past year, investors’ faith in sovereign debt has been shaken, most obviously through the crisis in the eurozone where the “peripheral” countries of Greece, Ireland, Portugal and Spain have seen their borrowing costs soar.
However, the weight of debt in many of the biggest developed countries, such as the US, UK and Japan, is causing many investors to question their dependence on government debt.
“In the old world, we had interest rate risk and credit risk. Interest rate risk was for the debt of the US, UK, Germany and Japan. Emerging markets were credit risk...The shock when you go from thinking about interest rate risk in European debt to credit risk has huge implications,” says Andrew Balls, head of the European investment team at Pimco, one of the biggest bond investors in the world.
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