German bond sale shows limit of safety appeal, says bond manager
Germany's underselling at its 30-year bonds auction is a sign there is a limit to how much investors will pay for the risk premium, says Henderson's Chris Bullock.
by Emily Blewett on Apr 26, 2012 at 08:01
Germany's auction of 30-year bunds on Tuesday failed to live up to expectations and this is a sign the market is willing to pay only so much for euro area risk, said Chris Bullock, euro corporate bond manager at Henderson.
The €3 billion auction of German 30-year government debt saw only €2.4 billion snatched up and Bullock, who runs the Henderson Horizon Euro Corporate Bond fund - one of the best performing funds in its sector - alongside Stephen Thariyan, believes investors are sending a signal to the market.
'I don't think the auction is a sign that we should be worried about Germany,' said Bullock. 'I think it's more a matter that people aren't going to pay that risk premium over that time - otherwise the whole yield curve would be much flatter.'
'We are still seeing shorter term bunds with negative yield which means that investors do still demand the liquidity of safe haven Bunds in the short term.'
Bullock said that investors looking for a yield with limited risk are increasingly turning to high quality corporates.
'I'm quite comfortable with the high quality corporate assets that I hold at the moment and I don't think I would be adding sovereign debt any time soon,' said Bullock.
‘Bunds are at the wrong level for fair value but this doesn’t mean that it’s not sustainable. German bunds can stay this low for as long as it takes Europe to sort out its structural problems - which is an indeterminate amount of time.'
His fund's main exposure is corporate debt in the UK, France, and the Netherlands and he said he recently increased his cash levels from 2.4% at the end of March to 5%.
'Our cash exposure increased this month as we sold out of some peripheral debt and saw more inflows. We're looking to reallocate into cheaper financials but with uncertainty around the elections in Europe, we're certainly not in a rush.'
The Euro Corporate Bond fund has returned 9.3% over the last three years. The average manager in the sector returned 5.2%.
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