“When you think about credit risk today, sovereign default risk is the number one concern for investors, while the corporate bond market has been relatively benign since 2008–2009,” according to Edward I. Altman, a highly respected researcher of the high-yield bond markets,
The U.S. government will hit the statutory limit on its ability to borrow sometime between mid-February and early March, and unless Congress authorizes an increase in the debt ceiling, the government will not be able to meet all of its financial obligations. While the political squabbling has garnered most of the headlines, there are real financial consequences at stake. In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers how they expected financial markets to react if the U.S. failed to resolve its debt ceiling crisis and subsequently defaulted on its debt.
We are three years into a “recovery,” but labor participation is still low, gasoline prices — albeit off their highs — remain at high levels, and economic growth is clearly substandard. So, why can’t the economy turn the corner? I’ll bet you $1 trillion that I can tell you why.
Social spending is virtually exploding in Japan right now, and at the same time its population is aging. Can the event horizon for a debt crisis be that far off?
Some of the best-known research on financial crises asserts that countries get into trouble when debt-to-GDP ratios surpass 80%. With a national debt that now checks in at roughly 220% of gross domestic product, Japan, at least by rule of thumb, should have collapsed a long time ago. Yet Japan has — thus far — somehow avoided a debt crisis.
Stephen G. Cecchetti discusses commercial bank leverage, calculating risk weightings, and the long-term effects of excessive sovereign debt.
As a former portfolio manager, I know that practitioners often pay too much attention to the micro-level issues of individual securities and not enough attention to the broader macro-level context. Investors often reach for a microscope when they should… READ MORE ›
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