Bloomberg News

Nordea Investment Sold Italian Bonds on Growth as ECB Weighs on Sentiment

March 02, 2012

Nordea Investment Management, part of the Nordic region’s largest lender, sold some Italian bonds in the past month amid concern the global economic recovery may be derailed by higher oil prices.

The world beating rally in Italian debt this year may also fade after the European Central Bank shielded itself from potential losses in Greece’s debt restructuring, said Martti Forsberg, responsible for managing about 2.5 billion euros ($3.3 billion) at the investment company’s Helsinki office. The world economy is “not out of the danger zone,” International Monetary Fund Managing Director Christine Lagarde said Feb. 27.

Italian bonds have risen with their Spanish counterparts since December as investors used proceeds from the central bank’s liquidity operations to buy the debt. The securities were also buoyed as the ECB bought them as part of its bond-buying program. The gains may be threatened as the global economy slows and investors perceive that they will be disadvantaged in any restructuring, Forsberg said.

Investors are now focused on “how this restructuring is going to be done,” Forsberg, who joined Nordea in 2000, said in a telephone interview on Feb. 24. “As it is, it seems it will be done by letting certain shareholders keep their senior position. That has an effect on how investors feel about holding the weaker countries’ bonds in the future.”

Nordea Investment Management, a unit of Nordea Bank AB (NDA), oversees about 191 billion euros, according to its 2010 annual report.

ECB Status

The ECB swapped about 50 billion euros of Greek bonds for new debt, making it senior to other investors, according to Moritz Kraemer, head of sovereign ratings at Standard & Poor’s, and exempting it from the largest sovereign debt forgiveness in history. That may hit demand for bonds in the so-called periphery, said Forsberg, who bought Italian notes before the ECB’s first cash allotment to banks in December.

“In effect investors who hold bonds that the ECB has been buying are now subordinated bondholders and that is of course is an important new feature in European bond markets,” Forsberg, 39, said. “That’s a factor that will keep longer yields higher than they otherwise would be. It’s not a positive that’s for sure.”

Italian bonds delivered the highest returns this year among 26 markets in an index devised by Bloomberg and the European Federation of Financial Analysts Societies, earning 13 percent including reinvested interest as of yesterday.

Brent Crude

The yield on the nation’s 10-year securities fell below 5 percent yesterday for the first time since August. The yield reached a euro-era record of 7.48 percent on Nov. 9. The bonds rallied with those of Spain after the Frankfurt-based ECB offered banks three-year loans in the first long term refinancing operation in December.

Ten-year yields rose today for the first time since Feb. 23, climbing by two basis points to 4.98 percent at 10:22 a.m. London time. The yield on the Italian two-year debt, which slipped below 2 percent yesterday for the first time since October 2010, was little changed at 1.75 percent.

Brent oil may rise to $150 a barrel this year if diplomatic relations between Iran and the west worsen, Barclays Plc said yesterday. Crude oil for April delivery rose 52 cents to $107.59 a barrel at 11:35 a.m. yesterday on the New York Mercantile Exchange. Prices have gained 8 percent in the past year.

ECB Allotment

The central bank said on Feb. 29 it would lend 800 financial institutions 529.5 billion euros for three years. That was more than the 470 billion-euro median of 28 estimates in a Bloomberg survey and the 489 billion euros taken up at the December operation.

The yield on Italian two-year debt slipped below 2 percent yesterday for the first time since October 2010.

Forsberg said he bought Italian shorter-dated notes last year, favoring them because of their liquidity and high yields compared with Spain. He reduced his holdings of Italian bonds and is underweight the longer-dated securities of both countries, meaning his funds own a smaller percentage of the debt than the indexes against which they measure their performance. Forsberg is neutral on shorter-dated notes in Europe’s so-called periphery countries, he said.

To contact the reporter on this story: Lukanyo Mnyanda in Edinburgh at

To contact the editors responsible for this story: Daniel Tilles at

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