Sovereign debt issues to linger
Resolution of the current European debt crisis will not necessarily serve to reduce the risk attaching to developed country sovereign bonds, according to Blackrock Australia head of fixed income Steve Miller.
He said that even if Greece, Spain and other European countries managed their way through the current debt crisis, the uncomfortable fact remained that most western countries faced demographic deficits.
“It is likely public sector budgets face even more strain in the years ahead,” Miller said. “Retiree numbers are also likely to rise and the numbers of taxpayers is likely to fall on a relative basis.
“We now know that sovereign debt is not risk-free and traditional issuer-weighted fixed income benchmarks have not caught up to the new reality,” he said.
Miller said that to avoid the threat of sudden and hostile market events, investors would have to consider reconfiguring their fixed income allocations in a far more risk-aware manner.
AUTHOR
Mike Taylor
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