Bonds: Dev ex-US

(New York)

Want to know an asset class that has better risk-adjusted returns than equities over the decades and still has quite good liquidity? Look no further than external sovereign bonds, or the bonds issued in foreign currencies, like the Republic of Argentina 7.5% bond maturing in 2026. The bonds also have a low correlation to stocks, which means having both of them in the portfolio overall should produce lower volatility. The asset class has flown largely unnoticed because of a lack of a benchmark or return history (until now) and the fact that there have been a handful of notable sovereign crises in recent years.


FINSUM: A lot of people shy away from this asset class, but it definitely has a place in the portfolio. The lack of correlation and the good risk-adjusted returns make it attractive.

(Frankfurt)

In another sign of the deteriorating global economy, bond yields in Europe are once again moving negative. German Bund yields fell in trading recently and are now below zero. The move reflects the recently weak data coming out of Europe as fears grow about a recession there. Europe had seen negative bond yields for a long period until the brief bout of economic strength over the last couple of years.


FINSUM: Can the US be the odd man out in deflecting the global downturn? We have done it before, but this time feels different.

(Rome)

Italy looks like it is in bad shape. It is openly defying the EU’s budget rules by running an excessive deficit, and what’s worse, it looks likely to be downgraded to junk status by ratings agencies. Moody’s already downgraded the country to Baa3, its lowest investment grade rating and just one rung above junk status. Yields have been swinging wildly on the country’s bonds as a result.


FINSUM: We are quite worried about the implications if Italy gets downgraded to junk, as it could mean lots of funds need to sell the bonds because of their mandates. What kind of sell-off could that spark?

Contact Us

Newsletter

Subscribe

Subscribe to our daily newsletter

Top
We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…