Not too late to sell Bunds, says Kames Capital’s David Roberts

David Roberts, joint head of fixed income at Kames Capital, who has been short of German and other eurozone sovereign debt in his $500m Strategic Global Bond fund, says that it is not too late sell Bunds, in light of market reaction to the latest credit rating agency moves.

To assume German debt is in some way a good investment when investors have to pay to lend is nonsense. The most spurious argument I have heard is that you should buy Bunds because when Europe breaks up you will be handed a pile of Deutschemarks. German finances are so intertwined with the broader eurozone that to expect an easy or short term exit is nonsensical.

In the interim, holders of Bunds receive less than nothing, are exposed to high levels of volatility and see currency devaluation as the euro falls in value.

A recognition that investors are better served buying corporate debt or putting their money into real assets is long overdue. Only when that happens can we find a path to investment and growth and start to eradicate the debt problems which bedevil the whole of Europe.

For too long monetary authorities have crowded out real economy investment and forced people to buy ultra expensive assets. A recognition of the folly behind this strategy may lead to a more normal level of interest rates and investment across the eurozone.

At the very least this potential downgrade is likely to lead to underperformance of German debt relative to that of other countries such as the USA, UK and Norway.

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