Gregor Hirt, multi-asset chief investment officer at Allianz Global Investors, said French officials must reassure foreign investors that the country’s finances are in good shape or risk another widening of the spread between French government bonds and those of other countries.
Hirt, whose unit manages 156 billion euros ($168 billion), noted that foreign investors hold the most French government bonds among the Group of 10 countries, and some worry that the current political turmoil could trigger a European debt crisis comparable to that of more than a decade ago.
"Any reminder of the European debt crisis is a red flag for many international investors," he said.
Fears that a victory for the right or left would worsen France’s bloated public finances have spooked markets and triggered a sell-off in French bonds. On Friday, the yield premium investors demand to hold French 10-year government bonds over German ones hit its highest level since the depths of the euro zone’s last debt crisis.
Hirt was in Asia when French President Emmanuel Macron shocked markets by announcing early parliamentary elections, and saw firsthand how his clients reacted.
“We need the French government to take some action to stabilize the situation so that these big investors will feel comfortable,” he said.
Foreign investors accounted for about 50% of the French bond market in 2023, according to the International Monetary Fund. By comparison, foreign creditors accounted for about 30% in Italy, Britain and the United States.
As the first round of voting in the French parliamentary elections begins this weekend, Hirt is sticking with his overweight stance on the dollar against the euro, despite a recent pickup in eurozone economic data. He also sees gold as a shield against geopolitical turmoil.
Compared to the French election, Hirt said the July 4 British general election will be "not a big deal" because the Labour Party is widely expected to win. He is bullish on British stocks and believes a Labour victory could lead to closer ties with the European Union.
Allianz continues to hold a long position in 10-year U.S. Treasuries. He said euro zone bond spreads widened amid the sell-off in French bonds, but did not offer enough extra return to make French bonds more attractive. "The risk for France is that its bond spreads could continue to widen," he added.
The article is forwarded from: Jinshi Data
