IceCap Asset Management: "Achtung Baby"

As Europe continues to churn nowhere but down economically, it seems that leading government officials everywhere have suddenly become fixed income experts. According to these financial wizards, declining yields from Italy and Spain is vindication that (once again) the worst is over. This is the point where we ask investors, government officials, and media to read beyond both the headlines and the first paragraph of investment reports. Just as the declining US unemployment rate is attributed to more and more people simply giving up hope (there’s that “word” again) and not an abundance of new jobs; the decline in sovereign bond yields is the result of domestic banks and pension funds buying new bonds from their respective governments – not an increase in confidence from international investors. While strong domestic demand for a government’s debt is usually a good sign, “forced” demand is not. By any measure the all-in strategy of demostics banks and pension funds investment in their own bonds is epic.


Of course, odds are this epic strategy will only end in disaster. The high concentration of investment is embarrassing for whomever is in charge of the fund and is really no different than directly raiding the pension fund assets. This is a shameful act and ultimately someone will have to pay for this Spanish mistake, which naturally leads us to Germany. And, in simple terms, the generosity threshold of the average German is pretty close to being breached.


Full Arcticle below:


IceCap Asset Management Limited Global Markets 2013.4


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