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NB's Jonsson: deflationary pressures weighing on US and Europe
by Matthew Goodburn on Dec 18, 2013 at 11:52
'We only hold a small allocation to emerging market debt but are looking to add. We have added a 1% position in Mexican local currency debt but in EM hard currency we hold 5% in a basket of countries.
‘Emerging market debt has become more attractive but there are still high levels of volatility so we are wary, but looking to add further exposure.
‘EM will become more attractive as credit continues to outperform. We expect that continue, providing a good opportunity to rotate some of our credit exposure into EM assets over the next year.’
Jonsson continues to view 10 year US and UK government bonds as 'close to fair value' but has a more negative view on the five year part of the curve in the US.
He also views Japanese government bonds as an overbought market and sees changing habits from domestic investors as playing a key role in causing JGB yields to rise over the next two or three years.
'We have taken the long term view on Japan that it is another overbought market and the BoJ is setting the prices in that market. The weak currency is filtering into the real economy and we believe shorting JGBs is an attractive way to make money.'
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