As Europe sinks deeper into its sovereign debt morass, America should be partly happy. That’s because, on a relative basis, Europe is making the U.S. economy look better in the eyes of bond investors.
At a time when many have questioned investors’ willingness to continue gobbling up American bonds, it thus should be comforting for the U.S. that a major alternative to U.S. bonds, Euro bonds, isn’t looking as attractive as it used to. Japanese bonds aren’t looking so hot either given Japan’s economic challenges as well.
Thus European travails have ensured increased demand for U.S. bonds going forward, and an increased ability for the U.S. to weather through its current period of deficit spending and economic weakness. Sometimes victory is had by the player who simply commits the least errors. It economics this rings especially true given that almost every nation seems to blunder along whatever path political winds blow.
Am I gobbling up U.S. debt? No. But for investors who need to park massive amounts of capital in ‘low-risk’ fixed-income, ie. the investors that matter here, the above applies.
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