EUROPE: Announcing a haircut on Greek bond holdings would help restore a positive mood to bond markets, which have largely priced in such a move, said DWS Investments' CIO Asoka Wöhrmann.
The potential for Greece to default has rattled markets this week, and Wöhrmann said if a haircut was introduced, devaluing the value of Greek debt, it would boost sentiment.
He said people are treating the Greece issue "like the most important topic in the world, but it is not, Greece is just 3% of European GDP." He added core Europe is growing well, and global GDP is heading for 3.5% to 4% this year.
Wöhrmann said any adjustment to Greek debt would suit investors who have already factored it into their positions, as well as CDS holders.
"The first 12 months of the crisis will bend the nerve of investors, and if you want to be in Greek debt you have to learn not to sleep for quite some nights in a year."
He added the European periphery's woes have reinforced the importance of active fund management.
Up to 2007, the rolling 12-month correlation to German bunds of equivalent sovereigns from Italy and Spain, and covered bonds, was approximately 1. Since then it has ranged from -0.5 to 0.9.
"This is now the time for active management because correlation is low and sometimes negative. You can add something using construction tools as beta is running out of steam."
Wöhrmann added the US is only spared the wrath of debt markets because its dollar is the world's leading currency, representing 64% of foreign reserves. If this falls below 50%, America will start to suffer, he said.
"The US' domestic savings do not exceed its capital needs, but it is a special case because its currency is the global reserve, and that status is a safety net. This is why the US could expand its debt levels and why Greece cannot, and has to adjust."
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