Spanish Debt Too Costly for Santander Fund Manager Buying Bunds

  • Money manager sold peripheral debt over seven-year maturity
  • Says Spanish 10-year yields would be attractive again at 1.6%

Germany’s government bonds are more appetizing than Spanish debt, even with a yield about one-tenth as big.

That’s the opinion of Francisco J. Simon, who helps oversee 11.8 billion euros ($13.3 billion) at Santander Asset Management SA in Madrid, Spain’s third-biggest money manager. He said that over the last month he sold all his holdings of peripheral-government debt -- Portuguese, Spanish and Italian –- with due dates of more than seven years.

“Peripherals are too expensive now, but I wouldn’t mind getting back into them after the yield comes back up,’’ Simon said in an interview. He said he’d be tempted if Spain’s 10-year bond yield climbed to about 1.6 percent, from 1.49 percent on Monday, provided there were no “new negative shocks for Spain or the periphery.’’

The European Central Bank’s quantitative-easing program has driven prices of southern European government debt too high, Simon said, meaning they may fall back in the face of the perils he sees on investors’ radar screens: “a very weak economic situation, with China risks and global deceleration affecting the euro area.’’

Biggest Benefit

German 10-year bunds will benefit most during the economic slowdown and low-inflation environment, and Ireland’s government debt is also attractive for the nation’s fundamentals, including an annual growth rate of more than 9 percent, he said.

Gains in Europe’s benchmark government debt pushed 10-year bund yields to as low as 0.07 percent on April 11, within 0.025 percentage point of a record low about a year earlier. Back then, investors balked at the low yield, which within two months vaulted above 1 percent amid a global debt selloff. It was at 0.16 percent on Monday at 4:45 p.m. London time.

Germany’s government debt returned 4.1 percent this year through Friday, compared with 2.4 percent for Spain’s securities and 2 percent for Italy’s, according to Bloomberg World Bond Indexes.

The Tandem 0-30 Fixed Income fund, which has 3.7 billion euros in assets and is co-run by Simon, performed better than 81 percent of its Spanish peers in the last six months, though it beat only 41 percent of its counterparts across Europe.

Most European managers of conservative mixed funds, which include bonds and stocks, have lost money in 2016 amid a drop in equities. They did better over the past six months, earning a median of 0.5 percent, according to a Bloomberg search of 849 so-called conservative allocation funds.

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