Hedge funds account for around 50% of French spread widening, Fidelity says
TLT•Fidelity’s fixed-income chief investment officer said hedge fund activity accounts for probably 50% of the widening in French bond spreads. The premium of French 10-year borrowing costs over Germany’s reached 150 basis points on Friday, up nearly 50 basis points this week.
1. Hedge fund activity
A greater share of French government bonds held by hedge funds has helped exacerbate the recent sell-off, Fidelity CIO for fixed income Marion Le Morhedec said. She said hedge fund activity accounts for probably 50% of the spread movement at the moment.
2. French borrowing costs
The premium of French 10-year borrowing costs over Germany’s reached 150 basis points on Friday, rising nearly 50 basis points this week. French bond prices have fallen as a global bond sell-off and concerns about France’s public finances have led investors to seek safer European debt.
3. Investor participation
Hedge funds have become important government bond investors as traditional investors such as pension funds reduce their holdings. The article notes that hedge funds’ short-term return targets and use of borrowed money can add market volatility.
