Major fund managers look to European bond markets

December 01, 1992|By Jonathan Fuerbringer | Jonathan Fuerbringer,New York Times News Service

NEW YORK -- Major institutional fund managers seem to favor European bond markets and the American dollar right now, according to a new quarterly survey by Merrill Lynch. The American bond market, with its uncertain outlook ahead, gets just a neutral nod.

The Merrill Lynch survey shows that a lot of big fund managers still hope to take advantage of the capital gains possible in European bonds as prices rise with the decline in interest rates.

Yet, at the same time, they are worried enough about a rising dollar erasing their profits from abroad that they are trying to hedge this risk by loading up on dollars now.

Michael Rosenberg, of Merrill Lynch, said the survey also indicated that the dollar might be in line for a temporary fall because so many fund managers had bought the dollars they need.

This means that as the year draws to a close, the dollar-buying could taper off and the American currency weaken.

In trading in New York yesterday, the dollar closed at 1.5909 marks to the dollar, down from 1.6005 Friday.

The bet on rising prices in European bond markets has worked out. Interest rates in Europe have fallen since the September currency crisis, which forced Britain and Italy to withdraw from the European monetary system and finally got the Germans to ease interest rates a little.

But recently, the Germans have been sending out signals that interest rates will not fall further soon. This means that the rally could be stalled for some time.

Yesterday, the president of the German central bank, Helmut Schlesinger, said he understood that his European neighbors wanted interest rates to fall further to help revive their struggling economies. But he said in an interview with the daily paper Frankfurter Allgemeine that "as the situation is now, with monetary growth as strong as it is and still substantial price rises, we cannot comply with such wishes."

In Britain, interest rates have already been cut sharply -- from 10 percent in September to 7 percent last month -- so much of that bond rally there may be over for now.

The Merrill Lynch survey, based on reports from 84 fund managers in the United States, Britain, Germany, Australia and Japan, measured how much managers had altered their basic or standard allocations of funds in bond and currency markets around the world.

When they were at their standard allocations in particular investments, the survey counted them as being neutral. When they were above their standard allocations, they were considered overweight; when they were below, underweight.

On the dollar, 71 percent of the funds are overweight, 9 percent are underweight and 20 percent are neutral. The overweight is up from 50 percent in September, which gives some indication of the buying that has helped lift the dollar more than 14 percent against European currencies since then.

Based on the survey, funds have been cutting back on their exposure to bonds in Britain, Japan, Canada and Australia. But they have been increasing their exposure to bonds in Germany and in European markets with high interest rates that are expected to fall, including Spain and Italy.

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