BlueBay Asset Management LLP, which oversees $59 billion, has cut its holdings of Italian, Spanish and Portuguese bonds on concern Greece is heading for the euro-zone exit door.
The money manager sees a 60 percent probability of Greece defaulting on its public-sector debt over the next couple of months, according to Mark Dowding, a London-based partner and money manager.
“It’s a bit naive to think negative developments on Greece won’t have any impact on other peripheral bonds,” said Dowding. “A non-payment by Greece would lead to speculation that Greece may exit the euro zone. If the Grexit were to occur, it would mean the risk that others may leave would be no longer negligible.”
Greece must make four payments totaling almost 1.6 billion euros ($1.8 billion) to the International Monetary Fund this month and its bailout package backed by the euro region expires at the end of June. The yield spread between Spanish bonds and similar-maturity German debt surged to 1.39 percentage points on Monday, compared with an average of 1.22 over the past year.
BlueBay’s mid-May decision to go underweight peripheral bonds, or hold a smaller proportion than contained in benchmarks used to measure performance, was also driven by diminished liquidity in the bond market, Dowding said.
“We’d rather be in a position to buy these securities on dips than to sell them into a volatile and illiquid market,” he said.