Sunday 25 March 2018

Bond guru says 'sacrifices pay off' as he cashes in chips

Michael Hasenstab: Continued to cut Irish debt holdings.
Michael Hasenstab: Continued to cut Irish debt holdings.

Joe Brennan

Franklin Templeton's Michael Hasenstab, who made billions of euro investing in Irish bonds, continued to cut his holdings of the now highly-prized debt in the first three months of the year as yields plunged.

The amount of Irish debt held by US and Luxembourg-registered versions of Hasenstab's Templeton Global Bond Fund and the Templeton Global Total Return Fund fell 61pc to a face value of €1.8bn during the first quarter of the year, according to figures compiled by Bloomberg from filings. In the six months to the end of March, the holdings fell by €5bn, or 73pc.

"Ireland's economic and financial policy management of the crisis will remain an important model from which other countries can learn," Mr Hasenstab said in a statement. "It is heartening to see the hard work and sacrifices paying off."

Bond market "wonder kid" Michael Hasenstab shot to international prominence at the height of the European debt crisis when he snapped up Irish government bonds at knock down prices from nervous investors who feared a possible national default.

By betting against the market trend the so called "contrarian investor" became the largest private holder of Irish government debt, and scooped an estimated €2bn profit as the bonds recovered in price. The fund manager began to build his position in 2011, as the yield, or interest charged, for 10-year Irish bonds reached a high of 14.2pc.

The yield on bonds reflects investors' assessment of the risk of default - the yield goes up as the price investors will pay for the bonds goes down. So, the higher the yield the greater the perceived risk.

Irish bonds have recovered dramatically since Michael Hasenstab's huge bet, generating returns of about 71pc since the end of 2011, according to an index compiled by Bloomberg.

Today, investors lend to Ireland for 10 years in return for a yield, or return, of just 0.73pc, helped by European Central Bank (ECB) President Mario Draghi's quantitative easing programme.

Irish government bonds maturing in 2018 now carry a negative yield - meaning it costs investors to buy the debt.

Some Hasenstab bets haven't paid off as well. His firm is now facing losses as it is the biggest bondholder for troubled Ukraine.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business