DWS calls for announcement of Greek debt haircut

Announcing a haircut on Greek bond holdings would help restore a positive mood to bond and risk markets, which have largely anticipated such a move already, said DWS Investments’ chief investment officer Asoka Wöhrmann.

He predicted “a haircut, but one in net present value terms [which would] bring a positive mood back to markets”.

The potential for Greece to be cut to default status has rattled markets this week.

Wöhrmann compared the ongoing saga to malaria – “you feel it is solved then, after three months it all comes back.”

He said many people treated Greece’s problems “like the most important topic in the world, but it is not, Greece is just 3% of European GDP.” He said core Europe was growing well, and global GDP was heading for 3.5% to 4% this year.

Wöhrmann said any adjustment to Greek debt would suit investors who already adjusted positions to market levels, as well as CDS holders.

“The first 12 months of the crisis will bend the nerve of investors, and if you want to be in Greek debt you have to learn not to sleep for quite some nights in a year.”

He added the European periphery’s woes have, at least, reinforced the importance of active fund management.

Up to 2007, the rolling 12-month correlation to German bunds of equivalent sovereigns from Italy and Spain, and covered bonds, was approximately 1. Since then it ranged from -0.5 to 0.9.

“This is now the time for active management because correlation is low and sometimes negative. You can add something using construction tools as beta is running out of steam.”

Wöhrmann added the US is only spared the wrath of debt markets because its dollar is the world’s leading currency, representing 64% of foreign reserves. If this falls below 50%, America will start to strike problems, he said.

“The US’s domestic savings do not exceed its capital needs, but it is a special case because its currency is the global reserve, the status is a safety net. This is why the US could expand its debt levels and why Greece cannot, and has to adjust.”

David Walker

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