The only constant in the investment world is change. This basic truth has spread even into the bond world - a corner of the market that has the undeserved reputation for being a bit sleepy and conservative. In just a few short years many basic assumptions that underpinned bond investing have gone up in smoke, leaving investors to figure out what the new normal truly will be. (To get you started on the basics of bonds, check out 5 Basic Things To Know About Bonds.)
Sovereign Default - Not Just a Third World Phenomenon
Defaults on sovereign debt are hardly new; Africa and South America have struggled with them for years and they have long been part of the backdrop of emerging market bond investing. What is new, though, is the risk of these defaults spreading into the developed world and shaking up some of the fundamental assumptions about risk in bond investing.
Although there hasn't actually been a sovereign default in Europe yet (Iceland never defaulted on sovereign debt, and Greece and Ireland haven't yet), many investors feel it is only a matter of time. Even allowing for the reality that countries like Greece, Ireland and Spain were never thought to be as financially strong as Germany or Sweden, this is a fairly shocking turn of events. While the Eurozone will likely stay intact throughout this mess, it has clearly shaken investors and should lead them to revisit their basic assumptions about risk in that region.
To read the full column, please follow this link:
http://financialedge.investopedia.com/financial-edge/0611/A-New-World-For-Bond-Investors.aspx#axzz1QZh0jk00
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