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Bond Investors Get ‘Return-Free Risk,’ Aquamarine’s Spier Says

Investors in government bonds are getting “return-free risk” and should buy equities, said Guy Spier, chief executive officer of Aquamarine Capital Management LLC in New York.

“Forget fixed-income securities for now,” Spier said at the Bloomberg Sovereign Debt Conference hosted by Bloomberg Link in Frankfurt today. “Equities are always attractive because they have unlimited upside.”

Investors with large amounts to invest, such as the People’s Bank of China and other central banks, are forced to buy Treasuries and the bonds of other governments because of the lack of alternatives, he said. Smaller investors should buy stocks, he said.

Keith Wirtz, chief investment officer of Fifth Third Asset Management Inc. in Cincinnati, said equities offer “tremendous value.” Emerging markets and the U.S. offer better potential returns than Europe, he said.

The European Central Bank’s 1 trillion-euro ($1.32 trillion) longer-term refinancing operations, credited with restoring confidence in the region’s banks and sovereign debt, have had the effect of increasing the subordination of lenders’ bondholders, said Martin Fridson, global credit strategist at BNP Paribas (BNP) SA in New York.

“Banks are also buying more of their domestic sovereign’s debt,” he said. “They are becoming less diversified, increasing systemic risk.”

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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