The European Union will eventually create a euro-zone bond when countries such as Germany are satisfied with efforts by member nations to reduce deficits, according to Perella Weinberg Partners LP’s Daniel Arbess.
“There’s going to be one debt issuance that will be backed jointly and severally by all the European countries,” Arbess, a partner in New York at Perella Weinberg who manages the Xerion hedge fund, said today in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “It hasn’t happened yet because Germany and the other countries that ultimately are going to have to be bankrolling this process want to see more structural reform in the debtor countries.”
Perella Weinberg would buy the securities because Europe’s consolidated debt load is less than that of the U.S., according to Arbess.
“Ultimately, we would buy a euro bond,” Arbess said. “On a consolidated basis, when you look across all of Europe, the strong countries and the weak countries, Europe’s debt load is significantly lower than the U.S. and Japan.”
Treasuries have lost 0.4 percent this year as of yesterday, compared with a 0.6 percent gain for German debt and a 0.9 percent decline for Spanish debt, according to Bank of America Merrill Lynch index data.
Spain’s Budget Cuts
Efforts in Spain to calm investor concern with 10 billion euros ($13 billion) of budget cuts in education and health failed to stem concern the nation may be the fourth euro member to need a bailout.
The yield on Spain’s 10-year benchmark bond surged 22 basis points to 5.98 percent as Economy Minister Luis de Guindos declined to rule out a rescue for Spain. Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need more capital if the economy weakens more than expected.
Germany’s 10-year yield fell nine basis points to 1.64 percent, approaching the record low 1.636 percent set by Europe’s benchmark government securities Sept. 23. The five-year yield decreased as much as 10 basis points to 0.617 percent, the least on record.
In Spain, “the pressure is going to be on again for an acceleration of fiscal consolidation, for more monetary intervention by the European Central Bank,” Arbess said. “We’re not particularly concerned about it. This is part of the ebb and the flow of what we call the tape and Band-Aids environment, the tape and Band-Aids economy, where government policy has to continue to respond to pressures that are imposed by market forces.”