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sovereign risks from an investor perspective
For market practitioners, numbers are not the whole story
FiF Credit Roundtable
• budget/debt figures may not be complete
Ratings are not enough
• ratings reflect risk of default, not risk of bonds performing poorly
Qualitative factors can be key, and are hard to quantify
• political calculation about potential international support
• understand cross-country exposures, especially banking
• understand social contract and government constraints
• be cognizant of market technicals e.g. central bank collateral rules
This material is provided by Loomis Sayles for informational purposes only and should not be construed as investment
advice. Investment decisions should consider the individual circumstances of the particular investor. Any economic
projections or forecasts contained herein reflect the subjective judgments and assumptions of the presenter and actual results
will be different. There can be no assurance that developments will transpire as forecasted. Accuracy of data is not
guaranteed but represents our best judgment and can be derived from a variety of sources.
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Greece
• When is it cheap enough?
• What is the right buy/sell
signal?
• How does it compare to
other opportunities?
Greece 10 yr price & Greek CDS
115
0
50
110
100
150
105
200
250
100
300
350
95
400
M-10
F-10
J-10
D-09
N-09
O-09
S-09
A-09
J-09
J-09
M-09
Is the home bias stronger in
Europe??
450
A-09
90
M-09
FiF Credit Roundtable
sovereign risks from an investor perspective
Data as of 3/17/10. Source: Bloomberg
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sovereign risks from an investor perspective
Government vs IMF GDP Forecasts
Risks to fiscal consolidation
2.5
• Growth falls short
2.0
• Local govts derail plans
• Little improvement in
revenue collection
Real GDP YoY
FiF Credit Roundtable
Implications for other fixed income sectors:
• Potential crowding out effect
• Lower government spending on longer-term investment
• Renewed push for privatization
1.5
1.0
0.5
0.0
-0.5
2010
Ger
2011
Fr
Ire
It
2012
Gr
Port
Sp
2013
UK
US
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