From Norway to Greece... government bonds ranked by safety

Are South Korean government bonds a better bet than South Africa’s? BlackRock has updated its 44-nation sovereign risk index to help find out which governments to back.

The index, known as the BSRI, draws together financial data, surveys and political insights to give an overview of sentiment towards government securities.

It is based on 30 variables, with four main data categories, covering metrics such as debt-to-GDP; government stability, exposure to foreign currencies and strength of the country’s financial sector.

And, the publication of this update, which follows on from the first edition in October 2011, comes at a time when investors have started to raise questions over the merits of investing in government bonds, particularly European sovereigns.

So, who comes out on top? The analysis, which was undertaken with a keen focus on the eurozone, makes grim reading for Italy, Ireland, Greece and Portugal. These countries join Venezuela and Egypt among the six nations with the greatest sovereign risk.

At the other end of the scale, Norway is viewed as the safest government bond, with Switzerland, Sweden, Finland and Canada also among the top five at the low-risk end of the scale.

Moving up the scale, according to the BlackRock analysis, is Japan, which has risen five notches to sit 29th in the table following an improvement in its government stability after the election of prime minister Yoshihiko Noda.

Other improving nations were said to be China, which had increased its primary surplus having predicted a budget deficit in the third quarter, and Peru, which also saw its primary surplus grow between the third quarter and end of 2011.

In the opposite direction, Thailand and South Africa were said to be falling down the scale. Both Thailand and South Africa’s debt-to-GDP ratio widened between the third quarter and end of 2011, while South Africa also experienced a fall in perceived effectiveness of its government.

See our guides on investing in government bonds:

Government bonds: safe haven or danger zone?

Emerging market bonds: risky currency bet or neglected money-spinner?

Index-linked gilts: time to get out of linkers?