Chapter 5Where and What to Invest In: The “Alternatives”

A shrinking universe of AAA-rated government bonds has presented alternatives. Figure 5.1 on page 136 taken from the International Monetary Fund (IMF) 2012 stability report shows what other potentially “safe” securities exist. The universe is substantial, estimated at $74.4 trillion of which AAA-/AA-rated government bonds represent the majority ($33 trillion). Some of the assets classed such as agency bonds, supra national debt, and covered bonds have low risk premiums relative to U.S. Treasuries. They are increasingly taking over the role of government bonds as traditional collateral, liquidity instrument, and benchmark rate to value other assets. In the following subsections, several ...

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