Until recently, few have dared wager against German bonds, fearing the firepower of the German government and the European Central Bank . Many now view the eurozone crisis as too far gone not to impact on Germany, however.
Among those hedge fund managers already shorting German bonds is John Paulson, the U.S. hedge fund manager who rose to prominence in 2007 thanks to correctly betting that the U.S. housing market would collapse. Bill Gross, the chief investment officer of the world’s largest bond fund, Pimco, is also bearish on the prospects for German debt.
There are “few scenarios” under which Bunds perform well Mr Gross said earlier this month.
“Bunds are attractive to short because they are at historical lows in spite of the fact that the German fiscal position can only deteriorate,” said one hedge fund manager of a large top-tier global macro firm. “It is an obvious trade if you can wait.”
Managers believe the cause of such a sell-off will be Spain’s difficulties which they expect to worsen and lead to a costly bailout.
Jamil Baz, the chief investment strategist at GLG Partners said policy makers’ tools were becoming weaker and weaker.
“The crisis has not even started,” he said, predicting that deleveraging in the eurozone could take 20 years to accomplish.
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