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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. 1 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 2 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 3