BlueBay Buying Slovenian Bonds on Bets Economy Can Endure Crisis

BlueBay Asset Management Ltd., which oversees $47 billion, is buying more Slovenia bonds on bets a combination of the nation’s resilient economy and central bank liquidity will bring down borrowing costs.

Slovenia, which is seeking to avoid becoming the sixth euro-area state to request a bailout since the start of the region’s debt crisis, saw its bond yields climb to the highest since August last month amid concern financial turmoil in Cyprus would spread. The country had a debt-to-gross-domestic product ratio of 54 percent last year, compared with 127 percent in Italy and 86 percent in Cyprus, according to Luxembourg-based statistics office Eurostat.

“Slovenia remains a relatively high conviction trade for our funds,” Russel Matthews, a money manager at BlueBay in London, wrote in an e-mailed response to questions. “The market has suffered from domestic political noise and contagion from Cyprus. During this period we have been opportunistically adding to our exposure as we believe Slovenia has relatively strong fundamentals and should continue to benefit from the positive technical environment that exists in the sovereign space.”

Slovenian bonds rose for a fourth day, with the yield on the 4.625 percent security due in September 2024 falling three basis points, or 0.03 percentage point, to 5.81 percent as of 9:15 a.m. London time. The yield climbed to 7.50 percent on March 28, the highest since Aug. 20 based on closing prices.

IMF’s Support

International Monetary Fund Managing Director Christine Lagarde said last week she supports policies announced by the Slovenian government and dismissed investors’ concern that the country will be the next euro-area nation to receive a bailout.

Prime minister Alenka Bratusek “has indicated she wants to pursue privatization, that she wants to allow for better management of companies” close to being bankrupt and to “reinforce the capital of Slovenian banks,” Lagarde said.

BlueBay is also overweight Portuguese, Spanish and Italian bonds, Matthews said, meaning the company holds more of the securities than recommended by the benchmark index it follows.

“The strong environment generated by central banks is coming to the fore,” he said. “Core yields are dropping ever lower so there is a mammoth grab for yield in play.”

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