Investors See McDonald's as Safer Bet than UK Economy

by Charlotte Cardingham
Posted by Hannah on 11 December 2008
Investors See McDonald's as Safer Bet than UK Economy

Confidence in the UK economy has been knocked to such an extent that investors now see the burger chain as a more secure investment.

Faced with the sterling in free fall and the threat of an impending recession, there is no doubt that the UK economy isn't in the best of health. However, despite this gloomy outlook, news that Britain is now seen by many as more of a credit risk than the big name burger chain is more than a little shocking.

Until recently, government debt was seen as the safe option for investors, particularly that of an economically strong country such as Britain. Corporate bonds on the other hand were seen as a more volatile means of speculation. However, in recent months the table has turned and the UK economy is no longer seen as the safe bet it once was.

According to new figures released by The Independent, those in the industry now view UK government bonds as a more risky investment than corporate bonds in companies like McDonald's, Kellogs and Coca Cola.

Movements in the credit default swap (CDS) market have revealed that the cost of insuring against the risk of default on government investments has quadrupled in the latter part of this year. This was largely spurred by the government bailout of several major players in the British banking industry and subsequent substantial increase in fiscal borrowing.

The cost of insuring against the risk of default on £10million of UK government debt now stands at £120,000, up from £30,000 earlier in the year. To put it in perspective, the equivalent insurance on McDonald's bonds is priced at £77,000.

The figures also place investor confidence in Britain's economy below that of Germany and France, with equivalent cover against default on government bonds totaling £51,000 and £61,000 respectively.

Speaking to The Independent, Chief investment strategist at Diapason Commodities Management, Sean Corrigan, commented: "For the UK to have this default rating is in some ways ludicrous but the market is using these instruments to express a view about the relative standing of certain countries. This has taken off as the domestic financial situation has got worse and the steps taken by the fiscal and monetary authorities have become more irresponsible."

Source

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Your Comments

Camille- TheFinancialWoman.com
on 13 Dec 2008 17:44
This is an interesting artilce. Who would have EVER predicted this? McDonalds safer than UK bonds??
 
anonymous
on 12 Dec 2008 07:35
that's doubly silly, because if things get so bad that the government defaults, what do you think your little cds contract is going to be worth?