Spreadbury shorts bunds in anticipation of eurobond

Fidelity’s Ian Spreadbury has said he is short German interest rate risk in the view that the eventual move towards a ‘eurobond’ solution will cause yields to rise.

Spreadbury, manager of the Fidelity Strategic Bond and Money Builder Income funds (pictured), expects the eurozone to move towards the issuance of debt backed by all member states over the long term.

“I am short German interest rate risk in terms of my overall duration. Yields are down at very low levels which I think is a temporary phenomenon,” explained Spreadbury.

“I think the odds are in favour of the euro hanging together and policymakers implementing a eurobond, it may take a while for this to happen but eventually Germany will recognise its in their best interests to pick up the tab.

“When this occurs German yields will rise, which is why I happy to put the short position on.”

However, he added another short-term fix could be introduced in coming months, to buy more time given Germany’s stern opposition to the measure.

Eurobills – short-dated debt with maturity dates of under a year – are one of many options which could be implemented to prop up peripheral Europe over the short-term, added Spreadbury.

“The flight to safety will continue until a eurobond is implemented, but the problem is getting Germany to agree, so until this happens a short-term solution like a eurobill will need to be introduced to stabilise markets,” said Spreadbury.

The manager has also built short positions in UK, France, Spanish and Italian sovereign debt.

Spreadbury maintains corporate bonds are offering the best return within the current uncertain environment.

The manager is running an overweight position to investment grade credit within the funds as an alternative to the crowded government bond trade.


This article was first published on Investment Week

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