“New world order” creates new view on risk

Since 2007, the amount of top rated government bonds halved globally - This forces investors to reassess their taste for risk. Also rating agencies have changed their view.

If you want to put your money in government bonds with the finest triple-A stamp, there is now far less to choose from than ever before.

According to the Financial Times, the total value of the world's triple-A-rated government bonds five years ago was 10.9 trillion. Today there are only about four trillion dollars of the coveted securities on the market.

This has consequences. Among others it sends investors into alternative bonds, including in developing countries as well as in to corporate bonds. But it also helps to push the interest rate on the remaining top rated government bonds even further - and in the case of Denmark right down to negative interest rates, so investors in practice pay to borrow money.

The emerging markets has always been assessed as high risk to invest in, but times are, they now are rated as more attractive than the alternatives. This put pressure on the southern European countries right now, who are longing for lower interest rates.

We will probably see more funds flowing to emerging markets. It is a problem for some of the southern European countries, as funds will now also flow over to emerging markets. The risk is perhaps a little larger, but so are returns.

When the secure investment opportunities are unattractive because of zero return, it may therefore cause investors to choose a different risk than they would otherwise have done. Others will because of inflexible investment strategies help to push interest rates even further.

Interest rates can get a downward pressure
There might be a problem when one does not know where to invest. Investment funds and pension funds may need to invest a proportion of their capital in triple A securities. There are fewer opportunities today, and it can help to provide a downward pressure on interests .

However, one must also note that credit rating agencies’ power over investment flow is less today than before the crisis. This was seen, for example, as investors sought towards U.S. Treasuries, despite the downgrade of the United States. The credit rating has probably gotten a little less important today.

Now is not that Moody's and co. have sat on their hands, after the crisis became a reality. Also rating agencies have had to adapt to the “new world order”. Credit agencies were following the financial crisis severely criticized because of their erroneous assessment of, among other structured U.S. mortgage bonds, there was a precipitating factor in the financial meltdown in 2008.

When it comes to the assessment of world government bonds, it dawned on agencies that they now have to look much more closely and differentiated on the countries' bonds, explains the head of the government bond department at Moody's, Bart Oosterveld, according to the Financial Times. “In the past we had analysts for respectively the advanced industrial countries and emerging markets - it required almost two completely different professional backgrounds to work with them, "said Bart Oosterveld, adding:

"Our methods in 2008 was based on 15-20 years of experience with state bankruptcies - but all bankruptcies occurred in emerging markets. It was obvious that we simply had to scrap the assumption that it is impossible for a highly developed nation to go down on its own currency - as Greece did."