**[investwise]** Citibank-In 5 years from now, there would no more "AAA" rated securities [1 Attachment]

 

[Attachment(s) from Maverick included below]

Citibank-Global Capital Markets The Era Of Risk Free Securities Is Over Why? First, we are getting close to the position where there may no longer be a risk free security (in the sense of free of default risk and/or of with a safe real rate of return) anywhere in the world.  At the moment, US dollar-denominated US Treasury nominal (non-inflation-linked debt) and euro-denominated German government nominal debt is probably still just about free of default risk, even though the 5-year US Sovereign CDS spread is around 40 basis points, implying a cumulative probability of default (CPD) over a five-year horizon of just over 3.5 percent, and the five-year German sovereign CDS spread is just over 30 basis points, implying a CPD of 2.8 percent. Triple-A sovereign ratings may in the not too distant future be found only in the history books. CMA's own Implied Ratings (based on their proprietary model), already have the UK stripped of its AAA status (the Implied Rating is AA).  We expect that the actual ratings provided by the rating agencies won't be far behind. Other countries at imminent risk of losing their AAA rating include, in our view, France (because of its large and persistent structural deficits) and Switzerland (because of the implicit exposure of a weak confederal central fiscal authority to a banking sector with a very large balance sheet).  Unless the US, the UK, France, Japan (currently AA rated) and even Germany change course quite radically and sooner rather than later towards a sustained higher degree of fiscal tightening, there may not be a single AAA-rate sovereign left 5 years from now. Second, the sovereign debt of some leading emerging market economies could soon be safer than that of any of the G7 countries. India may Outperform There is only one emerging market amongst the high-government deficit countries in 2009 – India. And India, with a gross general government debt to GDP ratio of over 80 percent during 2009 (see IMF(2010)), is much better able to manage a more than 10 percent of GDP general government deficit, because during 2009 it had a growth rate of nominal GDP of around 11.5 percent and most of its public debt is denominated in domestic currency and held domestically.  It remains true, of course, that India, unlike most other leading emerging markets at the moment, is highly vulnerable to a sudden weakening of nominal GDP growth, which could cause its public debt-GDP ratio to rise sharply unless its underlying government deficit is reduced. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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