Chart via JPMorgan’s Global Asset Allocation team:
As they explain further:
Bond sectors that were traditionally considered “safe” are no longer “safe”, inducing bond investors to rethink both their portfolios and risk management.
And it is not only credit risk that troubles bond investors. Market volatility, refinancing risk, reliance on foreign ownership and liquidity are all high on bond investor watch lists…
Greece has the highest risk score (a high score denotes high risk), followed by Ireland and Portugal. Following these are USTs, Euro Financials and Spanish government bonds. The high score of USTs seems surprising given their high liquidity. It reflects the fact that on all the other metrics, especially market volatility, USTs fare poorly. Indeed Table 2 [above, click to enlarge] shows that USTs have the 4th highest score in terms of 2011 bond redemptions as % of debt, the 5th highest debt as % of revenues and yield volatility and the 7th highest interest expense to revenues and % of debt held by foreigners. To assess the relative attractiveness of bond sectors, we look at the real yield they offer vs their aggregate risk ranking above. By looking at long maturity yields, i.e. 7-10 year maturity, we reduce the impact from diverging monetary policy cycles across countries…
But — only of those four can print their own money.
Which is quite a handy ability to have.
Related links:
Beware the special US Treasury market – FT Alphaville
‘A new era of Treasury price volatility’ - FT Alphaville
Financial stability is getting difficult - FT Alphaville