Pioneer’s Brexit Trades Include Shorting GBP, Gilts, Buying Vol
(Bloomberg) -- Pioneer Investments is considering trades including shorting GBP and U.K. bonds if the ‘out’ campaign prevails ahead of Britain’s referendum over EU membership, head of govt bonds Cosimo Marasciulo says in interview.
- In credit, the asset manager would look at going underweight British banks or shorting them vs other European banks in such a scenario
- Pioneer might also buy protection on sterling credit index in anticipation of wider U.K. spreads, and go long U.K. volatility
- Final investment choice to be based on most favorable risk/reward characteristics
- Pioneer closed all GBP positions earlier this year
- Says cable drop larger than expected due to last-minute hedging by corporates and institutions
- “It’s hard to say how much further this move will go, so we prefer to sit on the sidelines for the moment,” says Marasciulo
- Sees possible run out of GBP as overseas investors get spooked by fears of rating downgrades and economic uncertainty
- Foresees modest widening of credit spreads, mainly driven by U.K. issuers but also by peripheral ones such as Italian and Spanish issuers during campaign period
- U.K. bond yields haven’t reacted yet, so expect a possible catch-up rise in yields, he says
- With short-dated bonds supported by the lack of rate hikes, and very long-dated bonds in demand from pension funds and insurance companies, the bulk of the pain could be felt in the liquid, most-traded 10-year area of the curve
- Sees the 10-year gilt contract as an easy, liquid way to hedge existing U.K. exposure and positions
- Pioneer currently neutral on U.K. gilts
- House view is that the referendum result will be in favor of the U.K. remaining within EU
- Assess the probability of Britain leaving EU to be slightly below what has been forecast by most recent polls
- NOTE: Pioneer had assets under management of EUR224b as of Dec. 31, according to its website
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HALISTER1Source: BFW (Bloomberg First Word)
People Cosimo Marasciulo (Pioneer Investment Management Ltd/Dublin)
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