M&G Profits From Swiss Bonds, Franc as 10-Year Yield Breaks Zero
(Bloomberg) — In the turmoil that followed the Swiss National Bank’s decision to abandon its cap on the franc’s strength, Michael Riddell knew a small slice among his assets was about to get a large boost.
The London-based money manager at M&G Group Plc, which oversees the equivalent of about $389 billion, held positions that would benefit from gains in Switzerland’s franc and the country’s bonds. The Swiss currency ended Jan. 15 with the biggest advance on record and the rally in bonds sent yields on debt due as far out as 10 years below zero a day later.
“In one fund I was long Swiss government bonds unhedged, so wanted the bond exposure and the currency exposure,” to profit if the price and franc rose, Riddell said. “In another, bigger fund we just had the FX exposure, on speculation that the peg might go. I’m hanging on to both the bond and FX position, although in another fund we’ve reduced the FX position. Negative yields are not a problem for us.”
The franc weakened 1.6 percent to 99.11 centimes per euro at 6:01 p.m. in London after surging as much as 41 percent to a record 85.172 centimes on Jan. 15. The yield on Swiss 10-year bonds dropped to minus 0.034 percent with the price at 116.15 percent of face value.
About 2.6 percent of one of M&G’s funds was invested in positions that would benefit from a stronger franc, Riddell said. While this trade has mainly been closed, he “maintained the position of just below 2 percent in another fund,” and held onto the 10-year bonds, he said.
Deutsche Bank AG and Barclay Plc, two of the biggest currency traders, lost money on Thursday as the franc surged, according to people with knowledge of the companies, who asked not to be identified because the figures haven’t been made public. Retail currency traders from New Zealand to New York also said they were hurt by the currency’s moves.
“Judging by the sound of pain, then it sounds like” we had a relatively good day, M&G’s Riddell said. “Although there must be quite a few people who have made money too.”
–With assistance from Stephen Morris in London.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Todd White
