March 12 2012
Charts That Count
"Risk Free Return" or "Return Free Risk" - Will Canada be the Only Investment GradeG7 Issuer by 2040?According to research by SocGen, by 2040 Canada will be the only G7 country withinvestment grade sovereign debt. By as early as 2030 the US, France, Italy and Japanwill all lose investment grade status. To put this into perspective this means that inless than 2 decades the debt of countries currently representing approximately 50% ofglobal GDP will be ineligible for investment by the smallest municipal pension fund.Japan is actually expected to lose investment grade status in less than 10 years andlooking at the charts below this should not come as a surprise when it happens. BTW -Japan by itself represents almost 10% of global GDP.Clearly some profound changes are coming to the sovereign debt markets and mostimportantly to the idea of the "risk free" rates of return that can be found there. As onewag recently described it, sovereign debt no longer represents
"risk free return"
"return free risk"
.US Budget Deficits - Sustainable?Perhaps a picture truly is worth a thousand words. In this case think of the word"unsustainable" over and over again.