Fixed Income - PIGS get slaughtered!!

As the effects of Europe’s sovereign debt crisis continue, contagion fears linger.

The widened spreads in the PIGS, Portugal, Ireland, Greece and Spain (Belgium as well) have players in the fixed income markets getting back to the performance of the real economies of various markets.

Government structural deficits, their causes and management (or lack there off) coupled with currency swings and rising commodity prices all against the backdrop of the turnaround in the global economy all play significant roles in convoluting the perplexity of the ‘new normal’ in which the Debt-to-GDP ratio is key.

Looking at the debt levels, Kenya’s debt level (pardon my home-bias) seems to be at rather high levels particularly when the public debt is compared to the countries GDP.


As an investor, one has to ask about the sustainability of the government’s move to lower interest rates against the backdrop of the European debt crisis given the similarity in debt levels.

Since debt is not necessarily evil, its use dictates its suitability and therein lies the answer to the question of how disastrous to the economy (Kenyan) higher rates may become.

The development of infrastructure has been a key area in which the (Kenyan) government’s spending has been channeled towards. The belief is that a good infrastructure enables and supports economic development and will hopefully avoid the pitfalls the PIGS have found themselves in.