StateTrust's sovereign bond trading team actively trades sovereign debt from countries around the world. We trade both local currency bonds as well bonds denominated in other currencies, typically US Dollars, Euros or Yens. Our financial advisors continually monitor global markets in order to analyze opportunities arising from changing economic market conditions that translate into investment opportunities for our clients.
What Are Sovereign Bonds?
Sovereign Bonds are bonds issued by national governments. These government bonds can be issued in their local currency or in a foreign currency such as USD, Euro or Yen.
Sovereign Bonds can be classified as:
- Developed Country Bonds - Generally refers to bonds issued by G-7 Countries (USA, Japan, Germany, Britain, France, Italy and Canada).
- Emerging Market Bonds - Bonds issued by less developed countries. IIt does not include borrowing from government, supranational organizations such as the IMF or private sources, though loans that are securitized and issued to the markets would be included.
Sovereign bond issuance has historically been primarily issued in foreign currencies (external debt), either US Dollars or Euros (hard currency versus local currency). In recent years, the issuance in local currencies has been increasing.
| G7 countries | BRIC countries | LATAM | Emerging Asia |
|---|---|---|---|
| United States | Brazil | Mexico | Singapore |
| Germany | Russia | Argentina | Thailand |
| Italy | India | Chile | Indonesia |
| France | China | Peru | Malaysia |
| United Kingdom | Colombia | Vietnam | |
| Japan | Panama | Philippines | |
| Canada | Costa Rica | ||
| El Salvador |
Please note: Investing globally is subject to currency fluctuations, economic and political instability. These risks are accentuated in emerging markets.
Developed Country Bonds
These bonds have the highest credit rating in the sovereign bond debt class. Most countries in this category enjoy a credit rating of 'AAA' or 'AA' (Investment grade). They also have the lowest yields and price volatility.
According to the United Nations Statistic Division, the following countries are designated as "Developed":
- North America: United States and Canada.
- Europe: Western European countries.
- Asia: Japan.
- Oceania: Australia and New Zealand.
- Africa: South Africa.
Emerging Market Bonds
Emerging Market bond debt tends to have a lower credit rating than other sovereign debt because of the increased economic and political risks. Most Emerging Market debt issuance is rated below investment grade, though a few countries that have seen significant economic improvements have been upgraded to 'BBB' or 'A' ratings, and a handful of lower income countries have reached rating levels equivalent to more profligate developed countries.
In the wake of the credit crunch and the 2010 European sovereign debt crisis, certain emerging market countries have emerged as possibly less prone to default than some developed countries.
Emerging Market bonds can be classified by region:
- BRIC - Brazil, Russia, India and China.
- Latin American Bonds - Mexico, Brazil, Argentina, Chile, Peru, Colombia, Panama, Costa Rica, El Salvador and other Latin American countries.
- Asian Tigers - Singapore, Thailand, Indonesia, Malaysia, Vietnam, Philippines.
Click here to view additional information on Emerging Markets