Large money managers don’t expect the worries over one of Portugal’s largest lenders to have a lasting impact on global financial markets depite a rout in Europe’s markets Thursday.
“This particular incident seems fairly isolated to the Portuguese bank as opposed to a return to the euro zone crisis of a few years ago,” said Eric Stein, global fixed income portfolio manager at Eaton Vance EV +0.27% which has about $286 billion assets under management.
Mr. Stein said he believes “many of the euro zone bonds out there may continue to rally in the short-term after we get through this Portuguese bank issue” thanks to firm support from the European Central Bank’s easy monetary policies. Mr. Stein declined to comment on his euro zone bond holdings.
Some fund managers say the hiccup is a reminder that many global markets are vulnerable to questions about valuations of financial assets that are considered risky and have gained value over the past few years. Anxiety about Portugal cropped up earlier this spring as investors uncovered some accounting irregularities at the lender.
Erik Weisman, global bond portfolio manager at MFS Investment Management, which has $438.6 billion under management, said many markets globally including euro zone bonds have been overvalued due to the recent rally.
Mr. Weisman said he has been reducing exposure to government bonds in Spain, Italy, Portugal and Ireland over the past three months.
For now, Mr. Weisman said the selloff remains shallow. The euro zone’s bond market overall has surged since the summer of 2012 when ECB President Mario Draghi pledged to do whatever it takes to preserve the euro zone.
Thursday, the yield on the 10-year Portugal government bond rose by 0.2 percentage point to 4.013%. The yield has risen from around 3.3% a month ago but two years ago it traded above 10%. Bond yields and their prices move in opposite direction.
Robert Tipp, chief investment strategist at Prudential Fixed Income in Newark, NJ, which has over $400 billion bonds under management, said the selloff provides a buying opportunity.
“Looking six to 18 months ahead I’d expect, all else equal, Portugal to fully recovers from this and then some,” he said. Mr. Tipps said the company has added to its holdings of euro zone’s periphery government bond holdings in recent weeks. Prudential Fixed Income has been buying euro-zone bonds since 2012.
In: The Wall Street Journal