U.S. Treasurys have rallied in recent days as worries about slowing growth have overtaken concerns about the sustainability of U.S. government debt. But one analyst says Treasurys are among the riskiest assets on the planet today and investors should look at Asian government bonds instead.
"I'm afraid Fitch and Moody's haven't exactly covered themselves in glory by maintaining the triple A rating," Don Amstad, Director of Asian Fixed Income at Aberdeen Asset Management told CNBC on Wednesday.
"U.S. Teasurys, Eurozone government bonds, JGBs, they're low yielding, denominated in currencies that are set to depreciate, they're probably the riskiest assets on the planet today."
Instead, Amstad believes investors should bet on local currency bonds issued by Asian governments that are "more solvent" than the West.
"Fixed income 101 tells you that you really should buy bonds i.e. lend money to borrowers who are solvent, and if you can do that in currencies that are cheap and set to appreciate, then that's even better," Amstad said.
Amstad said Asian government debt offered much higher yields. For example, he said, one of Aberdeen's funds owned a 1.5-year bond that had a yield of 3 percent. On the other hand, 2-year U.S. Treasurys currently yield just 0.3 percent. Yields on 2-year government debt in countries like Indonesia, Thailand or the Philippines was paying 4 percent.
"We argue to clients that Asian fixed income, particularly local currency bonds and particularly short durations at the moment, should be a core part of anyone's portfolio."
Most Asian central banks are in the midst of raising interest rates to fight inflation, a factor that could be negative for bond holders. But Amstad said the rate hikes would like lead to further currency appreciation, which would benefit local-currency bonds.
"Most currencies in the region are cheap and we think most currencies in the region are set to appreciate over the medium term," Amstad added.