Debt guarantee may blind investors 29 July 2009 4:54PM Ian Rogers Glenn Stevens used his Sydney speech yesterday to remind the Australian (and other) governments of the need to work out a timetable under which to reduce and remove the flurry of government guarantees on debt securities, such as that over select state government debt and about half of all bank liabilities.While defending the guarantees as a prudent response to last year's liquidity shock, Stevens said "The longer-term question is whether, even without adverse effects on borrowing costs, we would really want to keep moving in the direction of a world where the bulk of debt is government-issued or government-guaranteed."It seems to me that that could easily be a world in which investors end up being no more discerning about risk and return than the buyers of CDOs a few years ago, and in which banks themselves ultimately rely on the guarantees to an inappropriate or even dangerous extent."Of course investors of all stripes - central banks among them - are acting opportunistically and reducing their holdings of vanilla government securities and buying higher yielding, government-guaranteed securities for their own fixed interest portfolios.