Investors should buy Spanish and Dutch three-year government bonds against equivalent-maturity French securities, according to Morgan Stanley.
“Successful Spanish supply has removed short-term funding concerns,” Laurence Mutkin, a managing director at Morgan Stanley in London, wrote in a research report dated July 9. “We also see upside risk to Spain from the bank stress tests. Our tactical model flags Holland as an attractive long due to better momentum, risk-adjusted carry and business cycle. We also find the commitment to fiscal austerity attractive.
‘‘By contrast France has a poor record on fiscal reform,’’ Mutkin said. ‘‘Similarities between our recommendations and recent World Cup performance are coincidental.’’
Investors should buy Dutch bonds maturing in January 2013 and Spanish notes due April 2013, and sell French securities coming due January 2013, Mutkin said.