Published in Financial Risks Today
Thanks to the sovereign debt crisis, fixed income is no longer seen as a risk-free investment, writes Sally Percy
There was a time when fixed income, particularly sovereign debt, was seen as a safe bet, the closest thing to a risk-free asset other than a house with its mortgage paid off.
And that time wasn’t so long ago. In 2008, Greek 10-year bond yields were nearly on a par with German 10-year bond yields, with both hovering around the 5% mark. Just four short years ago investors apparently believed that debt guaranteed by the Greek government was virtually as safe as that guaranteed by the German government. With hindsight, it seems a mad presumption. So how did it come to pass?