“That used to be what you paid to insure against a single company defaulting,” Dorrian said.

The greater awarenss of sovereign risk is opening up opportunities for active manager arbitrage, head of PIMCO Australia John Wilson says, with PIMCO itself targeting emerging market and Australian debt as a result.

“Many developed economies will continue to be impacted by the ‘New Normal’ structural headwinds of high unemployment, private sector deleveraging, de-globalisation and reregulation.  Emerging markets will benefit from high savings rates, no debt bubbles and further capacity for government spending,” Wilson said, adding that Latin America in particular had “learnt a lesson” from the Argentina default of 2001 and the harsh IMF punishments subsequently imposed for its fiscal malfeasance.

PIMCO also sees value in the Australian market despite interest rates being on the rise.

“We’re emphasising intermediate maturities where rates aren’t as likely to rise as quickly as shorter term issues.  We’re also tactically gaining exposure to the 1 year markets when investors price in too many rate increases,” he said.

Wilson said a number of strategies were being adopted to reduce risk in the portfolio.

“To reduce risk we’re overweight AAA tranches of Australian residential mortgage backed securities (RMBS) reflecting the high quality and strong performance of the underlying loans, and ongoing attractive spreads of up to 135 basis points above bank bills.

“We’re also targeting corporate debt in recession resistant sectors such as utilities, natural gas pipelines and consumer staples.”