Fixed Income  

M&G’s Riddell takes profits from Italian bonds

M&G’s Mike Riddell has sold out of a 7 per cent position in Italian government bonds after yields contracted sharply.

The manager of the £81.7m M&G International Sovereign Bond fund saw his positions in five and seven-year Italian sovereign debt gain in price since opening the position in July 2012.

Since then fears of a European debt collapse have eased, meaning yields on government bonds from several troubled nations have fallen.

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But Mr Riddell said he had taken the opportunity to sell his holdings as the forthcoming Italian election in February could result in more political noise and a selloff in eurozone debt.

Instead the manager has bought Swedish government bonds with seven and nine year maturities, citing an attractive currency and low inflation. He said Sweden has a positive real yield on its government bonds after accounting for inflation. Its 10-year government bond yield has risen in the past six months from 1.4 per cent to 1.8 per cent.

The M&G International Sovereign Bond fund has comfortably outperformed the IMA Global Bond sector in both three and five-year periods to January 11, according to FE Analytics, gaining 66.6 per cent over five years.

However, a difficult 2012 led the fund to drop to the bottom quartile of the sector over 12 months, losing 1.3 per cent compared to the sector’s average gain of 7.2 per cent, the data provider added.