Strong euro changes debt views

Source:Reuters-Global Times Published: 2017/8/23 18:13:39

Investors view longer-dated govt bonds favorable

The euro's double-digit gains this year are prompting some of the world's biggest money managers to view European government debt more favorably just as the central bank is planning to withdraw its support from the bond market.

Eurozone government bond yields have risen steadily since September 2016, when speculation over a reduction in the European Central Bank (ECB)'s 2 trillion euro ($2.35 trillion) plus bond-purchase program began.

Investors worried a drop in official bond purchases would send yields soaring.

But some investors are considering another push into the market thanks to the currency's strength.

They say further euro gains could push back the ECB's plans to remove post-crisis monetary stimulus and make government bonds more attractive due to a combination of currency gains and policy support.

"Mainly because of the euro rebound, we couldn't afford to be short duration in government bonds, so we changed our stance in June," said Patrick Barbe, who heads the sovereign team at BNP Paribas Asset Management.

The fund manager, with 566 billion euros of assets under management, is one of the biggest investors in eurozone government debt and has shifted from a "negative" to a "neutral" stance on government bonds with longer duration.

Investors tend to buy longer-dated bonds if they expect interest rates to trend lower or remain on hold for an extended period.

The euro has gained more than 12 percent this year against the dollar and is the best performing currency in developed markets.

A strong euro reduces import prices and therefore keeps inflation lower in the bloc, making it harder for the ECB to tighten monetary policy and encourage bond investors.

The ECB has bought more than 2 trillion euros of mainly government bonds and is nearing self-imposed limits in most bond markets. Total outstanding eurozone government debt stands at 7 trillion euros.

Posted in: MARKETS

blog comments powered by Disqus