Sovereign debt no longer a safe haven

The emergence of sovereign debt issues in Greece and other European economies has had the upside of making Australia a safe haven for investors, according to new research released by Russell Investments.

The Russell research paper argues that sovereign debt can no longer be viewed as a uniformly safe asset class, but it includes Australian bonds among the assets that hold a safe haven status.

It said that an exposure to sovereign debt not needed to be monitored with the same vigilance as more risky investment such as corporate credits.

Commenting on the research, Russell Investments portfolio manager for Australasia, Clive Smith said investors using sovereign debt as a risk-free anchor in a balanced portfolio should cast a critical eye over many global bond issues.

“The recent events in Greece and Dubai have shown that in the future, investment managers will need to have the resources to properly identify the risks inherent in investing in sovereign debt,” he said.

“As public debt is continuing to grow in many countries the problem is not going to go away any time soon,” Smith said.

He said that active management of exposures within portfolios would be paramount to properly managing the risks inherent in sovereign debt, with ‘set and forget’ being a thing of the past.