Tuesday, February 16, 2010

Where to Hide?

Any concerns within broader credit markets need to start with sovereign risk (per The Star).

The sovereign debt crisis contagion is spreading in Southern Europe, from Greece to Portugal, Spain and Italy, where government debts and budget deficits are high.

Investors have sold government bonds in those countries as perceived default risks have risen.

This has resulted in the rise in the yields of government bonds resulting in higher borrowing costs for the government and private sector as loans are often tied to the risk free rate of government bonds.
But that is not where it ends.

Since the remarkable comeback across all risk sectors following 2008's collapse (the illiquidity in TIPS during the crisis made them trade among credit risk sectors), corporate bonds (both investment grade and high yield), agency mortgages, and even TIPS have been under pressure.

So if you can't hide in credit, TIPS, or mortgages, where can you hide and get more than 0%?

I have a few ideas, but would love everyone's thoughts...

Source: BarCap