Eaton Vance macro strategy shorts French, Spanish debt

Dire growth rates and the threat of insolvency hanging over banks has caused Eaton Vance managers to heavily short both French and Spanish debt.

The global bond managers who started shorting Greek debt as far back as 2005, believe if Greece leaves the Euro it will not necessarily lead to a domino effect amongst other European countries.

The Eaton Vance Global Macro Absolute Return strategy, run by a team of four portfolio managers, is currently short both Spain and France’s sovereign debt.
One of the managers, Mike Cirami, who covers an area as wide as Central and Eastern Europe down to the Middle East and Africa, said the fund has nearly 6% short position on French government bonds and a short of nearly 3% to Spanish debt.

He said: “In both countries there is a potentially toxic combination of insolvency in some of their banks and a lack of growth.”

He also remains worried about policies the new French president Francois Hollande might pursue, such as marginal tax rate of 75%.

Cirami said: “I hold my hands up, we are free market fund managers so we don’t like high tax, but I cannot understand how a 75% marginal rate in France is going to encourage wealth creation.”

The strategy started shorting Greek debt as far back as 2005, but Cirami admits they didn’t see the full picture of the state of the Greek national finances.

He added: “I would be lying if I said we foresaw the whole picture. For us there was always a situation where the Greek numbers didn’t add up, and then when we looked at the spreads, which were around 20 basis points, we saw an opportunity. We didn’t need a perfect forecast to be right, but we clearly didn’t envision the events unfolding the way they have.”

The strategy no longer holds Greek debt, but believes even if the country leaves the euro, it will not necessarily mean a domino effect for other countries within the single currency bloc.

He said: “We don’t subscribe to the view that the markets are lined up to attack one country after another so there would not necessarily be a domino if, as seems likely, Greece leaves the euro. We think it very much depends on the policies of individual countries.”

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