Indian bonds among 10 riskiest in world

Indian government bonds are among the 10 riskiest in the world, according to an analysis of 44 sovereign issuers by BlackRock, one of the world’s biggest money managers overseeing $3.6 trillion of assets.

While Norwegian bonds are seen safest of safe haven, the once “A of AAAs”, the United States of America, is not even in the safest 10 — it’s a distant 14th, according to the Blackrock Sovereign Risk Index, which measures the risk to investors buying government bonds.

Welcome to a new world economic order where, apart from Norway, the top 10 countries whose bonds are considered safe to invest include Sweden, Switzerland, Finland, Canada,  South Korea, Chile, Australia, Denmark and Germany —  in that sequence.

That’s just one from Asia. Stretch it to Top 20, and there’s one more — Thailand, at 15.

If misery loves company, there’s solace: bonds of the small Latin American nation Peru are considered safer than those of the UK and France, while Japan’s are the 11th riskiest, just above India’s.
BlackRock began collating data after being dissatisfied with the sovereign rating practices of Standard & Poor’s, Moody’s Investor Services and Fitch Ratings.

The company claims its rigorous testing makes the index more accurate barometer.

And who are the nine others riskier than No. 35 India? In descending order: Spain, Argentina, Hungary, Italy, Ireland and Venezuela, Egypt, Portugal and Greece.

But domestic economists disagree with the hypothesis, citing India’s forex reserves, the nature of its debt as well as its higher growth trajectory.

Sachchidanand Shukla, economist at Enam Securities, said there is evidence of an alarming deterioration of India’s sovereign risk profile to deserve such opprobrium. “While the Indian economy remains vulnerable due to its dollar linkage and dependence on oil prices, this has been the case for a long time. India has been running a fiscal deficit, but it cannot be considered ill-advised for a growing economy to do so. The economic fundamentals in India are far better than in European nations. The reserves and maturity profile of debt, the fact that short-term debt is backed by adequate reserves and India’s growth differential when compared to other s are all favourable,” he said.

A key metric for rating agencies to decide on a nation’s creditworthiness is its ability to raise debt in its own currency, i.e. are people willing to lend to a country like India in rupees in the same manner that they may do for advanced countries. “The fact that India does not have capital account convertibility , along with other reasons impairs its ability to raise such capital which also affects its credit rating, ” said Shukla. Jyotinder Kaur, economist with HDFC Bank, said India cannot be equated with European nations in terms of solvency. “There have been concerns raised on the fiscal and current account deficit but a default is unlikely since there are no immediate solvency or liquidity concerns. Most of the debt is held internally and growth in the economy is high. Debt is unlikely to be a worry so long as nominal GDP growth is higher than interest-rate growth,” she said. The report, led by Benjamin Brodsky, managing director fo fixed income at BlackRock, along with Garth Flannery, Sami Mesrour and Ewen Cameron Watt of BlackRock said their initial analysis was judgmentally based, and contemporaneously validated by a correlation with sovereign credit default swap (CDS) market spreads. “ Over recent months we have constructed the back history of this approach running from January 2005 to July 2011, taking care to use ‘real-time’ data,” they said.

“In this quarterly update, we complement our earlier analysis, showing how the BlackRock Sovereign Risk Index has outperformed ratings agencies and sovereign credit default swap spreads in highlighting downgrade risks. Considering heightened activity within the eurozone, we show how the BSRI would have led agency activity over the span of these countries, while leading markets in their shift from complacency.”