Natixis, the French investment bank and asset manager, is tackling the question: which countries’ bonds are really risk-free?It considers five criteria it says are necessary for a bond to play a “risk-free” role in an investor’s portfolio, and the U.S. is near the bottom of the list.
According to Natixis, a country must (in their words):
- have sound public finances (be solvent);
- not have excessive monetary creation, which could result in either an abnormally low level of long-term interest rates in the near future, or a risk of inflation in the long term;
- not have a chronic external deficit (due to the small size of industry, a chronic problem of competitiveness), which would lead to a balance of payments crisis;
- not have excessive private debt, which would lead to a financial and banking crisis;
- have sufficient potential growth to carry the debt.
Here is their ranking of past and present countries with perceived safe-haven statuses based on the five criteria:
The safest country, according to Natixis – the only one to score a perfect 5 – is Sweden, and the only country with a 4-score is Norway.
Canada, Germany, Denmark, Switzerland, and Australia all scored 3 out of 5, while Italy, the Netherlands, Austria, Belgium, and Japan scored 2 out of 5.
Rounding out the bottom with 1-scores are the U.S., the U.K., and France, while Spain and Finland got zeroes.