Concerns over government debt levels are building across the globe, and the effects have been felt beyond the sovereign debt universe. Stocks, commodities and foreign currencies all suffered in the back half of the week, as risky assets were shed in favor of US Treasury and Agency bonds. It was nice to see Dollar hold up in the face of all this, considering the budget and debt issues we face domestically. The dollar index rose 1.68% during the last 3 days of the week, and gold fell 4.62% over the same period.
Several dealers sighted heavy buying on the longer end, an obvious safety trade, while yields on bills were actually higher for the week, as investors sought duration to gain from the rally in bonds.
To try and put the sovereign credit issues into perspective I built this table comparing CDS of some major countries with some more familiar US companies. There are some large discrepancies between credit ratings and CDS cost (BB- Venezuela at 1,055 basis points vs. BB- Turkey at 214 bps.). This should explain pretty clearly how little credit ratings are worth these days.
Have a good weekend.
Cliff J. Reynolds Jr., Investment Analyst
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