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Barclays Equity Gilt Study Sees Risk-Free Asset Returns Far Below Historical Norms

57th edition also looks at the structural advantages for certain developed countries in fiscal sustainability.

The return on risk-free assets has fallen far below historic norms, a condition that may persist for many years, according to the 57th edition of the Barclays Equity Gilt Study. Assets such as debt issued by solvent governments have grown more expensive while equities and other risk assets are in line with historical norms. Much of the reason for this, the report concludes, is due to a relative scarcity of safe assets.

“Addressing this scarcity will be a significant challenge for financial markets,” said Piero Ghezzi, Head of Economics, Emerging Markets and FX Research, and an author of the report. “The solution may be to permit emerging market economies, in particular China, to become part of the stock of safe assets; however, we see this as a long-run change that will mean the safe-asset shortage will be with us for some years to come.”

The Equity Gilt Study also includes a look at the fiscal vulnerability of developed countries, and the reasons why Europe’s sovereign debt crisis has not spread to the US, UK or Japan. This study concludes that the difference lies in full monetary authority, currency flexibility and reserve currency status, although these factors merely buy time, and these countries will also have to address large fiscal imbalances over the next decade or face undesirable consequences.

China’s transition from economic ‘miracle’ to normal development is also examined. The Chinese economy is likely to change significantly in the coming decade and will have implications for the world economy should a major downturn occur in that country.

Finally, the Equity Gilt Study looks at risk premia strategies, suggesting that such strategies for managing risk factors will become increasingly popular as investors in the post-crisis era seek returns beyond equities and broad market exposures.

About the Barclays Equity Gilt Study

The Equity Gilt Study has been published annually since 1956, providing data, analysis and commentary on long-term asset returns in the UK and US. This publication is unique not only for its longevity, but also for its focus on the medium and long term. The UK data base goes back to 1899, while the US data – provided by the Centre for Research in Security Prices at the University of Chicago – begins in 1925.

For information on obtaining a hard copy of the Equity Gilt Study, please contact Barclays Capital Corporate Communications.