ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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The Long View

World Investment Outlook

Where to invest? Those with cash or charged with investing other peoples’ savings have had a serious headache over the past two years. The world is a deeply uncertain place right now. This normally indicates an attraction for bond markets – which in traditional versions offer a fixed interest rate and a commitment to repay the initial investment in full. They are relatively safe over the long run and are less volatile over the short term. But like most investments, by the time it is the obvious investment, it is too late.

Benefiting from strong demand, bond markets the world over offer high prices and pitifully low interest rates. The United States may be clinging on to the edge of a fiscal cliff by its fingertips, but interest or yield on a 10-year US government bond has fallen to less than 2.0%. Given that 2.0% would not compensate an investor from a slight chance of a default, it would be reasonable to ask whether the fiscal cliff is just a political mirage. In Spain, where there has been much chatter around a possible eviction from the euro area, 10-year government bond yields are just 5.0%. If you were to offer the Swiss government cash for them to use and return in 10 years time, they would only offer you 0.5% interest per year – and you would still run the risk of a currency loss given how over-valued the Swiss franc is. Despite the pessimism swirling around government finances and these paltry returns, the absence of good alternatives has kept bond markets bid and yields low.

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