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Credit Insights

Balance Sheets of Developed Nations Reach Outer Limits

The ongoing crisis in sovereign risk has highlighted the differences between investing in corporate and government bonds.

Balance sheets matter. As the world is learning, balance sheets of many developed nations are reaching their outer limits. Soaring deficits have pushed debt leverage of many countries to the point where credit markets are questioning their ability to support debt loads.

While many nations, such as Spain and Portugal, have recently announced new austerity programs, the credit markets are still skeptical that these programs will be enough. Credit spreads for these nations have tightened since the European bailout package was announced, but they remain as wide as where they were in February, when sovereign credit concerns began to manifest.