LONDON Oct 17 Schroders' head of global macro Bob Jolly is betting against German government bonds because he believes investors are treating them as too much of a safe haven and yields could rise whether or not the euro zone resolves its debt crisis.
Jolly, whose fixed income team manages $15 billion in assets, put on short positions - bets on the price going down - across a range of German bond maturities at the start of October, when his GAIA Global Macro Bond fund was launched.
Investors hunting for a safe haven during the euro zone's prolonged debt crisis have piled into German bonds over the past 18 months, driving yields on two-year bonds down from more than 1.9 percent last April to minus 0.086 percent in early August.
The European Central Bank's pledge to buy potentially 'unlimited' amounts of struggling euro zone bonds has seen a slight correction. However, Jolly argues that German yields still have too much of a safe haven premium built in.
Whichever way the crisis goes bunds could lose, he thinks.
Moves towards resolving the woes would push up yields as appetite for higher-profit periphery bonds returns, while investors hoping to be paid back in newly-created Deutschmarks if the euro zone disintegrates were likely to be disappointed.
"The euro zone will gradually get its act together. Bunds have a significant safe haven bid (that) we don't think is sensible," said Jolly, the former head of currency, UK fixed income and global sovereign at UBS Global Asset Management, at a journalist briefing on Wednesday.
"In the event of a blow-up, a lot of investors think Germany would make whole its debt (by converting it directly into Deutschmarks)... There's no way. You'll be left holding euros issued by Germany, which are not necessarily a safe haven."
Hedge fund managers have been betting in large numbers this year that French bond yields will rise as the country battles to cut its debt, but fewer have been willing to bet against German bonds, for fear of being caught out by an investor stampede for safe havens.