Citywire - For Professional Investors

Register to get unlimited access to all of Citywire’s fund manager database. Registration is free and only takes a minute.

Bluebay's Dowding sells German bunds to buy Spanish debt

Bluebay's Dowding sells German bunds to buy Spanish debt

Bluebay bond manager Mark Dowding has sold German bunds in order to buy Spanish debt in wake of the Spanish economy ‘turning a corner’, the Citywire AAA-rated manager told Citywire Global.

In early July, Dowding took an underweight position in German bunds in order to go overweight the benchmark in Spanish debt and has maintained the position since.

'Spain is the one ahead of its funding schedule and we expect Spanish spreads relative to Italian bonds to narrow', said Dowding, adding that risks of a downgrade will weaken as the economy 'turns a corner'.

Dowding, who co-manages the Bluebay Investment Grade Euro Government Bond alongside Raphael Robelin, is also overweight Italy and Slovenia and expects a Spanish recovery to boost an outperformance of the country's debt compared to Italy's in the second part of the year.

Although the supply of Germany bunds is expected to drop next year as its government policies lean towards fiscal tightening, Dowding does not believe that less issuance will have an immediate impact on the price of German bunds, whose yields have risen in past weeks on more optimistic sentiment.

'I don't see bund supply as having a big impact on the price of bunds. The main impact from the supply side is on the periphery,' said Dowding, .

Italy and Spain met their funding targets in July, allowing both countries to cancel mid-August auctions and as such saw the countries' bonds find support in reduced supply pressure.

Alongside better data from the euro area, peripheral bonds have since been boosted by a more risk-on sentiment in the markets with the yield on Spanish 10-year bonds on Monday trading at its tightest spread to German bonds in two years.

Cautious on data optimism

The bond manager also reacted to recent PMI data from July which came in above expectations, exceeding the crucial 50 mark, and indicates a return to growth for the euro area.

'I think it's very bold and premature to say that at the end of the year, the European economy will be stronger. I'm very wary of talks of the PMI index going from 50 to 60 in the foreseeable future,’ Dowding said.

'The periphery needs to grow if we are to see rebalances. What we have at the moment is a pattern of data that things are not getting worse - the market is very much taking the case of no news is good news.'

On France's government debt, which is still traded as a 'core' asset in the eurozone, Dowding says the team holds a neutral stance to the benchmark.

In the last two years to the end of July, the Bluebay Investment Grade Euro Government Bond fund returned 24.3%. Its benchmark, the EuroMTS Global index rose 14.78% in the same period.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Asia Bangkok Retreat 2018: day one images

    Citywire Asia Bangkok Retreat 2018: day one images

  • Citywire Asia Bangkok Retreat 2018: day two images

    Citywire Asia Bangkok Retreat 2018: day two images

  • Citywire Asia Taipei Retreat 2017: day one images

    Citywire Asia Taipei Retreat 2017: day one images

  • Citywire Asia Taipei Retreat 2017: day two images

    Citywire Asia Taipei Retreat 2017: day two images

  • Citywire Asia Bangkok Retreat 2017: day one images

    Citywire Asia Bangkok Retreat 2017: day one images

  • Citywire Asia Bangkok Retreat 2017: day two images

    Citywire Asia Bangkok Retreat 2017: day two images

  • Images from Citywire Thailand Forum 2017

    Images from Citywire Thailand Forum 2017

  • Citywire Asia Awards 2017: images from Singapore

    Citywire Asia Awards 2017: images from Singapore

  • Citywire Asia Awards 2017: images from Hong Kong

    Citywire Asia Awards 2017: images from Hong Kong

  • Citywire Asia Retreat in Bangkok: day two images

    Citywire Asia Retreat in Bangkok: day two images

  • Bangkok buzz: day 1 images from our Asia Retreat

    Bangkok buzz: day 1 images from our Asia Retreat

  • Images from Citywire's Thailand Forum

    Images from Citywire's Thailand Forum

  • Pictures from Citywire's Hong Kong forum

    Pictures from Citywire's Hong Kong forum

  • Images from our Citywire Singapore Forum

    Images from our Citywire Singapore Forum