DENMARK - Denmark's biggest pension fund ATP probably won't invest in top-rated bonds sold by Europe's rescue fund as it deems the securities to be too risky, said Henrik Gade Jepsen, the fund's chief investment officer.
"We didn't participate" in last week's inaugural sale of the bonds by the European Financial Stability Facility, Jepsen said yesterday in an interview in Copenhagen. "We really want the safest bonds in our portfolio. It's very important for us that our government bonds are really safe."
The EFSF last week received bids worth almost nine times the €5bn ($6.9bn) of AAA-rated five-year notes on offer, with Asian investors taking 38% of the securities. The fund will use the proceeds of the sale to help pay for Ireland's emergency loan. The facility may issue 10-year bonds next quarter after its first sale went "really well," said Carl Heinz Daube, head of Germany's Federal Finance Agency, in an interview yesterday.
The securities, backed by euro-region government guarantees, priced at a yield of 2.89%, or 57 basis points more than similar-maturity German yields.
ATP had DKK157.3bn ($29.1bn) invested in government bonds at the end of 2010, when the fund held mostly Danish and German debt as well as some French bonds, according to its fourth-quarter report published yesterday. The portfolio returned 4.1% last year, it said. ATP's total investment portfolio was $76.3bn at the end of 2010. (Global Pensions; 2 February 2010)
"We see government bonds as the main diversifier against equities in our portfolio," Jepsen said. "If we include bonds from Greece or other peripheral countries, they tend to behave as equities when things go bad."
European leaders are trying to persuade investors their efforts to reduce borrowing costs for the region's most indebted nations won't dilute credit markets in the euro area's top-rated members. Germany yesterday ruled out allowing the EFSF to fund bond buybacks from debt-strapped governments.
A German government official briefing reporters before a Feb. 4 European Union summit said the €440bn ($607bn) EFSF lacks the legal authority to purchase the outstanding debt to ease finances of countries including Greece. European officials have said such measures are being considered as part of a revamped crisis strategy.
European heads of state meet in March for a summit that will be "crucial for progressing the European debt crisis and in getting to resolve it in a systematic fashion," Bill O'Neill, chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management, said in an interview on Jan. 24.
The euro has gained 6% against the dollar since a Jan. 6 low as Europe's leaders persuade investors they have the political will to keep the single currency bloc intact.
Still, 59% of investors who responded to a Bloomberg Global Poll published Jan. 26 said they expect that at least one nation will leave the euro area within five years. Eleven percent predict an exit of one of the bloc's most indebted members within 12 months, the poll showed.
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