Wednesday, April 06, 2011


They correlate very well using 3-6 month time lags. This is one of the reasons why investors should be extremely wary of claims that investments involving foreign currency risk and subject to various geo-political stressors are somehow "immune" from global turmoil and provide diversification from systemic risk. EVERYTHING IS CONNECTED, and claims of "low correlation" must be approached with a standard analogous to the SCOTUS (Supreme Court Of The United States) "strict scrutiny" standard with respect to Constitutionality challenges.

(Reuters) - While investors balk at lending to debt-laden governments across the euro zone and even question holding low-yielding U.S. Treasury credit, some of the world's riskiest governments are still finding willing lenders.

Sovereign debt from frontier markets is benefiting in part from revved-up investor desire for high yields and also diversification, given these frontier bonds tend to have a low correlation with the ebb and flow of major world markets.

Even given that rationale, some investors have had a lot of risk to absorb, considering this year's outright default by war-torn Ivory Coast and the shrinking foreign exchange reserves of Soviet-style command economy Belarus.

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