WSJ Yesterday:
DECEMBER 8, 2009. my bolds
WSJ December 8, 2009 my bolds
Why Foreign Bonds Make Sense For Income-Oriented Investors .ArticleCommentsmore in Personal Finance ».
by Jennifer LEVITZ
It's never been easy for investment advisers to convince people that foreign-bond funds are a good bet. Typical investors have home-country bias, or a preference for Treasurys, municipal bonds and U.S.-company debt. Foreign bonds "often get a short glance," says Tom Roseen, a research manager at Lipper Inc. "People are more willing to…explore foreign-equity funds."
Yields are markedly better even in many relatively safe countries with stable governments and economies. For instance, Australia's two-year government bond yields 4.4% versus 0.8% for a U.S. Treasury of the same maturity.
These days, the debt of some foreign governments may look safer than the bonds issued by cash-strapped U.S. cities and states....
... money is streaming into foreign bonds, both government and corporate, largely through U.S.-based global bond funds, which have attracted net inflows this year of $76.8 billion through October in the strongest showing since his firm began tracking the bonds in 2003.
Concerns about Dubai's fiscal strength, after a state-run company sought to delay debt payments, show that the risk of bad debt is still out there,... says Arijit Dutta, a Morningstar Inc. analyst.
But he expects the Dubai disruption to be a "fairly local problem" and says it's still the case that many emerging markets have improved over the past 15 years as investments.
"Many of the bigger markets…Brazil, Mexico, and Russia, are way more fiscally responsible than in the past and have improved capacity to service their debt," he says.
Overall, investors "now have a sizable alternative to the domestic U.S. bond market," says Mr. Dutta.
He recommends that investors keep between 10% and 40% of their fixed-income portfolio in foreign bonds.
Mr. Carlson runs
Fidelity New Markets Income, an emerging-markets bond fund that recently has been adding to its investmenThe fund was up 44% through November and ranked fourth in its emerging-markets bond fund category in trailing three-year returns, and second over the past five years.
Mr. Carlson says he finds many emerging countries ts in debt issues by the governments of
Venezuela, Argentina and Russia. to be "less levered" than the U.S. and growing faster.
"
It's a play on global growth and sound fiscal policies," Mr. Carlson says
href="href="http://online.wsj.com/article/SB126027694950181771.html#mod=todays_us_page_one">WSJ Today
DECEMBER 9, 2009
Countries' Debt Woes Pose Risk to Upturn
By JOANNA SLATER, BRIAN BLACKSTONE and MARCUS WALKER
Worries over finances of some of the world's governments rippled through financial markets Tuesday, as a series of negative credit-rating actions served as a reminder of the fragility of the global recovery....
Fitch Ratings cut Greece's credit rating a notch to the lowest level in the 16-nation euro zone, raising concerns that Athens could be sparking the biggest fiscal crunch the European monetary union has faced in its 10 years. Moody's Investors Service sliced ratings even more on Dubai government-controlled companies, renewing worries about the Arab emirate.
Moody's also said the U.K.'s rating would be at risk if it didn't lower its budget deficit....
...Investors reacted to Tuesday's debt worries by retreating from riskier assets, punishing currencies like the euro
and the British pound. Bonds of riskier countries dropped. debt.
Russia's finance minister added to the chorus of concerns Tuesday. He said Russia is "still a weak link" in the global economy and would be vulnerable in case of a reversal of the tide of money now flowing in, partly because of higher oil prices.
.In coming months, Russia is seeking to borrow in foreign currency for the first time since it defaulted on sovereign debt in 1998, triggering a financial convulsion.
The euro is the centerpiece of Europe's drive toward closer political union, but skeptics have long warned that a monetary union isn't sustainable without more powerful pan-European political institutions.
Greece's struggles threaten the first real fractures in the European currency union since its inception in 1999. The union has a single currency and monetary policy, but each of its 16 members has its own fiscal policy.
The European Commission projects Greece's 2009 budget deficit at almost 13% of gross domestic product, versus an EU average of just under 7%. Greek government debt, currently about 112% of GDP, probably will balloon to 130% before stabilizing, Fitch said.
Fitch cut Greece's rating a notch to BBB+, still within investment grade, citing its lack of decisive action to rein in the deficit. High debt and a sluggish economy are shared by Portugal, Ireland and Spain, creating a risk of contagion if investors flee Greek assets.
"This raises question marks over the long-term viability of the euro's current membership," said Simon Tilford, chief economist at the Center for European Reform, a London think tank. "On current trends," he added, "we'll end up with economic stagnation and mounting political tensions in the euro zone, and, at worst, fiscal crises and a loss of political support for continued membership."
Investors sold the euro in the wake of Greece's downgrade. Late Tuesday in New York, one euro bought $1.4704, down from $1.4813 a day earlier, continuing a slide that started Friday when the U.S. reported upbeat jobs data. Stock markets in the U.S. and Europe declined, with Greek shares down more than 6%. Seeking safety, investors drove up the prices of U.S. and German government bonds. In a sign investors want to park cash in secure places through year-end, the U.S. Treasury sold four-week bills with a zero-percent yield.
The premium investors demand for holding 10-year Greek government bonds compared with the safer German government bonds hit its highest point since April. The premium, or spread, rose to as much as nearly 2.3 percentage points Tuesday, making it more expensive for Greece to refinance its debt.
Yet the fact that financial markets "are punishing the bad and rewarding the good is a positive development," said David Woo, head of global currency strategy at Barclays Capital in London. He said that what Greece is facing now -- a very public reprimand and higher borrowing costs -- is "a form of policy discipline for the Greek government to do the right thing."
Greek Finance Minister George Papaconstantinou pledged steps to restore fiscal credibility, doing "whatever is needed to meet our medium-term goals." But Greece's newly elected socialist government so far has failed to persuade EU officials or investors it will take the painful measures, especially spending cuts, that analysts say are needed to avoid a debt crisis. But Ireland is expected Wednesday to announce cuts in spending, including on public services.
Greece's problems underscore longstanding concerns the European monetary union lacks the tools to make sure members' debts don't spiral out of control. The reece's financial problems even worse.
Investors are also focused on the highest-rated borrowers. The U.S. and U.K. are among those with a triple-A rating, but Moody's cautioned Tuesday that without action to curb deficits, both could drift toward a possible downgrade.
