“The risk of owning sovereign bonds has fallen to a two-year low, setting the stage for more gains by the riskiest government securities as the investors look to a healing world economy.
The amount of risk priced into government issues is the least since 2011, lifting the average implied ratings for more than 80 debt markets to Baa2 from Baa3, or one step above junk, according to Moody’s Analytics. Credit-default swaps show the securities to be safer after more than $5 trillion in stimulus by the world’s central banks since 2009, according to data compiled by Bloomberg and Bianco Research LLC.
Even after returning 18.5 percent last year, bonds of Portugal, Ireland, Italy, Greece and Spain may produce more gains for investors. Their debt yields average 2.57 percentage points more than Treasuries, double the average gap of 1.26 percentage points of the past 10 years, according to Bank of America Merrill Lynch indexes. Investors from Brandywine Global Investment Management LLC to Prudential Financial Inc. are turning to government securities.
“There is still risk out there, but the wave of accommodation has set the stage for the reflation of the global economy,” Jack McIntyre, who manages $44.5 billion in assets for Brandywine, said by phone from Philadelphia on Jan. 22. He is buying debt in Brazil, Portugal, Italy and Ireland.
Divining Line
Concern that major economies will default has all but disappeared….”
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