To the original poster,
5% return for fixed income investment is not bad, if the risk is very low. But do factor in inflation, interest rate, taxes and etc. I think like one of the posters said, 7% is good, and 10% is very good.
Could I ask why you wouldn’t invest in US treasuries? To play devil’s advocate, US treasuries are considered one of the safest assets one could invest in due to the fact that they have never defaulted in history, not even during the great depression. Also, they are proxied as “risk free assets” in financial modelling and benchmarking. Some of the countries that you mentioned have quite high country specific risk and should maintain caution because of the elevated level risk of default-measured by both public sector deficit and public sector debt.
On to more salient points, the investor landscape has changed significantly. From an academic study of creditor/sovereign debt cycles, Reinhart/Rogoff outlined 3 critical points: 1. The true legacy of banking crisis is far beyond the direct cost of bailout packages, on average the outstanding debt nearly doubles within 3 years, following the crisis. 2. Aftermath of banking crisis is associated with an average increase of 5-7% in unemployment rate, which remains elevated for 5 years. 3. Once a country’s public debt exceeds 90% of GDP, its economic growth rate slows by 1%.
This is all followed by deleveraging of of the private sector accompanied by a substitution and escalation of government debt. This in turn slows economic growth and lowers return on investment and financial assets. Some of the countries you mentioned have rather high public debt, and deficit. The insolvency risk, is considered high. Also, looking into the longer run, deleveraging usually begins 2 years after the beginning of the crisis (2008), and lasts 6-7 years. Second, in about 50% of the cases, deleveraging results in a prolonged period of belt-tightening exerting a significant drag on GDP growth. In the remainder, deleveraging results in a case of outright corporate and sovereign default or accelerating inflation.
An important factor to consider prior to making sovereign fixed income investment is to examine initial conditions, bc it measures a county’s ability to respond to a financial crisis, since it is related to the size of its existing debt burden and points to future financing potentials. Developing countries like India, China and Brazil have total debt level in % of GDP in the 150 level compare to Germany around 300 and UK right below 500 and escalating.
To select low risk investments with potential growth, one should look into where growth is, where the consumer sector is still in its infancy, where national debt levels are low, reserves are high and where trade surpluses promises to generate additional reserves to come. Look to countries that deliver results in driving growth in the global economy, rather than countries that are losing their position.
Finally, required rate of return is almost always relative to the intrinsic risk of the asset.