Salient to Investors:

Investors can’t get enough government securities even though rising debt loads are blamed for curbing global growth. For the first time since 2008, all 26 markets tracked by Bloomberg and the EFFAS are poised to generate positive returns on an annual basis. Governments are getting a handle on borrowing and central banks are taking new steps to cap bond yields, and inflation slows.

Howard Simons at Bianco Research said the longer-term bull market in government bonds is intact all over the world.

Government bonds have returned 31 percent since mid-2007, with reinvested interest versus the MSCI All-Country World Index of stocks which has lost 4.2 percent with dividends, and versus the S&P GSCI Total Return Index of 24 raw materials which has lost 21 percent.

Michael Quach at Smith & Williamson Investment Mgmt said we still have a massive deflationary force and very low interest-rate policies in most developed nations.

Joachim Fels at Morgan Stanley sees global consumer prices rising 3.4 percent in 2012, 3.2 percent in 2012 versus 4.4 percent in 2011.

Jamie Stuttard at Fidelity Investments said gains in government securities reflect central banks support of government debt rather than a referendum on government actions.

Steven Miller at BlackRock said monetary authorities will do whatever it takes to stop any sharp rise in bond yields. Miller said if central banks keep buying a lot of government debt, that will curtail any tendency for yields to rise.

Gary Shilling at A. Gary Shilling & Co. said investors are better off with US Treasuries as there is no raging economic growth to justify what we’re seeing in equities markets – all this stimulus is really an opiate.

Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff wrote in April that developed economies with high public debt potentially face massive losses of output lasting more than a decade, even if their interest rates remain low. They found that countries with debts exceeding 90 percent of the economy historically have experienced subpar growth for more than 20 years, but weren’t advocating rapid reductions in government debt at times of extremely weak growth and high unemployment.

Japan’s debt of $11.5 trillion is more than double GDP, US debt is 68 percent of GDP, Greece, Iceland, Italy, Singapore, Portugal and Ireland all have debt exceeding their GDPs.

Jeffrey Caughron at Baker Group said demand will persist for sovereign debt and there’s room for healthy countries and those enacting responsible policies to continue to issue any debt.

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