The 2010 Equity Gilt study from Barclays says that aging baby boomers will run out of capital, draining government resources and making sovereign bond investments a bad idea.
Government bond markets are facing a decade of “disastrous returns,” according to Tim Bond, head of asset allocation at Barclays.
Bond reckons unfavorable demographic trends mean long-term yields in the United States and the United Kingdom will double from current levels over the next 10 years, moving up to around 10 percent by 2020.
Moreover, for the advanced G20 economies, the study projects that the government debt-to-GDP ratio will rise from 100 percent in 2010 to 150 percent in 2030, and to 275 percent of GDP by 2050.
Nor should investors expect that emerging markets will bail them out:
“The common assumption that future savings flows from the large developing economies will be a ready source of finance for the aging advanced economies is most probably flawed,” the study says.
“The projected trajectory for old age dependency ratios in countries like Brazil, China or Russia are as severe as in the United States.
“It is highly implausible to believe that Africa, the Middle East, and India will be capable of funding the rest of the world’s growing population of retirees.”
Emerging market bonds have gained recently as investors bet on support for Greece’s troubled economy, The Wall Street Journal reports.
On Feb. 9, the spread on JPMorgan's Emerging Market Bond Index Global was eight basis points tighter to 329 basis points over Treasurys; the index declined 0.07 percent.
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