French government bonds are overpriced considering the state of the country’s economy, said Andrew Bosomworth, managing director at Pacific Investment Management Co.
“If you look at” the French economy, “it is closer to other countries in Southern Europe” than to Germany, Bosomworth said during a panel discussion in Frankfurt today. “You are not rewarded accordingly to the risks” when buying French government bonds, he said.
France lost its top credit rating at Moody’s Investors Service yesterday. The downgrade follows one by Standard & Poor’s in January and increases pressure on President Francois Hollande to find ways to bolster growth. France’s fiscal outlook is “uncertain as a result of its deteriorating economic prospects,” Moody’s said in a statement.
Rather than buying French government bonds, Bosomworth suggested investing in Spain and Italy. “With the European Central Bank in the picture, the price is good in Spain and Italy,” he said.
ECB President Mario Draghi pledged to do whatever it takes to save the euro in July and introduced the bond-buying program, called Outright Monetary Transactions, on Sept. 6. Investors are now waiting for Spain to request aid from Europe’s bailout fund, a pre-requisite for the ECB to intervene in debt markets.
“The euro can survive but it is on shaky ground at the moment,” said Bosomworth. In order to save the common currency, the monetary union “has to be completed with a fiscal union,” he said.