Australian Retirement Trust, the nation's second-biggest pension fund, is buying French government bonds, betting markets have overpriced France's fiscal troubles and European Central Bank interest-rate hikes. The fund began adding 10-year French debt in September as yields climbed past 4.5%, stepping up purchases during the October rout when yields surged to 5%, the highest since 2002. Jimmy Louca, a senior portfolio manager, stated the market has priced in too much on both the extent of the ECB hiking cycle and fiscal deterioration. The fund manages about A$370 billion ($260 billion).
France's debt woes are stirring memories of the euro-zone crisis, as political turmoil and street protests complicate efforts to rein in a swelling debt burden. ART's buying stands out as many investors pull back, with bets on more ECB hikes further sapping demand. The unease has spilled into the euro, making it the worst performer against the dollar among Group-of-10 peers this month.
ART's overweight position in French bonds is part of its dynamic asset allocation program, which seeks to buy markets when they become cheap or dislocated. As a long-term investor, it aims to buy low and sell high to pursue returns for members. The rise in French yields above 5% in October pushed them further above the firm's assessment of fair value, prompting it to add exposure during the recent market dislocation. The selloff reflects a sharp repricing of fiscal risk, with the gap between 10-year French and German yields doubling since early September to around 170 basis points last week, the widest since the 2011 euro debt crisis.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing