A global bond fund manager says credit rating agencies' concerns about high debt levels could still pose a risk for New Zealand bonds.
Standard & Poor's and Fitch recently downgraded New Zealand's rating one notch, citing the country's rising debt, and persistent and widening current account deficits.
Russell Investments global bond portfolio manager Gerard Fitzpatrick was in New Zealand last week to speak to investors about the outlook for the global bond market.
Mr Fitzpatrick says growing economic concern has been good for the global bond market, because investors have been seeking out quality investments and good yields.
He expects the market turmoil to continue for a prolonged period, and says diversified exposure across bond markets will be key to providing comfort to investors.
And Mr Fitzpatrick says that approach should be applied to New Zealand bonds too.
He says New Zealand bonds currently have a comparatively high level of yield, which translates into higher earnings and the possibility of monetary easing in New Zealand.
But Mr Fitzpatrick says the financial markets have a heightened level of awareness about country's with an excessive level of debt, which is indicative in New Zealand's recent downgrade.
He says the appropriate position is some exposure to New Zealand bonds in a global bond fund, but not an excessive amount to avoid a concentration risk.
Mr Fitzpatrick says credit ratings agencies have been criticised in the past for being too slow to act, now they are being criticised for being too fast to act.
He says any country could risk further credit downgrades, which if it happened in New Zealand, could lead towards some international bond fund managers being constrained in the amount of investment they could make here.