The Flight to Safety
Bond yields are tumbling, as investors seek “safe havens” for their cash. Trouble is, no country is sound enough to warrant investing in it – and those accepting rates of as low as 1.02% on 10 year Swiss bonds, and of 2.11% on German Bunds are in for a rude awakening down the track.
The desire to find “safety” is understandable enough, but to seek it in the debt of nations is foolhardy, and represents behaviour more like lemmings following each other over a cliff. Why? Because the levels of indebtedness and economic fundamentals in all developed nations does not support the idea that such bonds are “safe”.
Far from it. Investing in bonds is investing in government debt – the very same debt that is getting us all into trouble. The same debt that must be paid back by citizens of each respective country – either by taxation or the stealth tax of inflation.
If such countries and their citizens simply revolt and do not pay back their debts – then bond investors are left carrying the losses.
In my book, the very last place I’d be looking for “safety” is in government bonds. So don’t be a lemming. If you are really looking for safety, then you should be in gold - the only real money.
Ambrose Evans-Pritchard takes up the latest developments in: Fresh flight to Swiss franc as Europe’s bond strains return
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