The Rising Tide Of Sovereign Risk

Sometimes we all lose site of the forest for the trees. In the case of sovereign risk, the trees are currently the PIGS in the Eurozone:

The PIGS go marching upward

I think it is useful to take a step back and see how sovereign risk overall, as measured by credit default swap levels on governments, has increased since the financial crisis. The CDS levels might not have been completely accurate in 2007, but I think the magnitude of change over the last few years is indicative of the increased risk of government debt as private sector liabilities have been transferred to the public sector:

Not many countries garner investor faith…

The important question to ask is how the deteriorating credit profiles of developed countries will affect all investment classes. As pointed out by Scott Mather of PIMCO:

In reality, peripheral Europe is distracting people from problems in the much larger developed world. And, I argue, one cannot escape sovereign debt issues simply by moving into other asset classes, because equities, real estate and all other investments will be affected if sovereign debt of a nation deteriorates.

It is an interesting dilemma for investors because there seem to be few, if any, safe havens.