Which are the safest government bond markets in Europe?

Yields on Swedish government bonds have dropped to their lowest ever levels relative to Germany today as investors flee traditional safe havens amid the eurozone panic.

The move has made AAA-rated Swedish 10-year government bonds one of the safest havens in Europe, according to Bloomberg data.

Yields have dropped to 1.799% on 10-year Swedish government bonds, while yields on 10-year German bunds are now at 2.2%.

Switzerland – which saw yields on its short-dated government debt turn negative last month – is also yielding less than Germany, with 10-year bonds paying out 0.84%. Meanwhile Denmark is paying 1.892%.

A disastrous German bund auction last week saw a worrying lack of demand for bunds, which have historically been perceived as a safe haven.

The crisis has called into question the safety of virtually all the world’s perceived bond market safe havens, with bunds and gilts all seeing yields rise sharply in the last week.

UK gilts also suffered their least popular auction this week with a bid-to-cover ratio of just 1.61 times.

Investors have been looking to European AAA-rated nations, Australian government bonds and US T-bills as other traditional safe havens fall out of favour.

Sweden, which opted to stay out of the euro and has recovered well from its latest banking crisis two decades ago, now has some of the lowest yielding sovereign debt in Europe.

Moves to pay down its debts and the enforcement of stricter rules on its lenders has been successful. Its debt to GDP ratio is set to narrow to 36.3% this year, while Germany’s is 81.7%.

Borrowing for a decade costs Sweden about 40 basis points less than Germany and it has not paid more than the eurozone’s powerhouse since September.

According to Bloomberg data, Swedish 10-year notes delivered a return of 28% this year, the best of any sovereign debt market over the period.

Sweden, Norway and Denmark all boast current account surpluses, signalling more money is flowing into their economies than leaving their borders.

Sweden’s surplus widened to 76.1bn krona in the third quarter, the highest tally since the start of 2008, the statistics office said on 30 November.

However, the country’s debt market is far less liquid than peers including Italy and Germany.

 Country  Yield on 10-year government debt
 Australia  4%
 Norway  2.46%
 UK  2.32%
 Germany  2.2%


 Sweden  1.8%
 Japan  1.07%

 As at 2/12/11 Source: Thomson Reuters


This article was first published on Investment Week

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