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Hedge fund unwinds intensify sell-off in French government bonds
The French-German 10-year yield spread widened to 154 basis points on Friday, the widest since 2011, as liquidity deteriorated and investors cut leveraged exposure.
Hedge funds unwinding crowded positions helped deepen the sell-off in French government bonds, with leveraged investors rushing to reduce exposure as losses mounted and market liquidity deteriorated, according to a report by Bloomberg.
The report said hedge funds including Taula Capital Management and Balyasny Asset Management had built positions aimed at capturing the spread between French government bond yields and interest-rate swaps. When French bonds fell sharply, investors started unwinding, accelerating the move.
The pressure pushed the spread between French and German 10-year government bond yields to 154 basis points on Friday, the widest level since 2011, during the euro area sovereign debt crisis. French bonds had already faced heavy selling on Thursday after criticism of the government’s budget proposals by the country’s fiscal watchdog, the report added.
Bloomberg also cited Marion Le Morhedec, chief investment officer for fixed income at Fidelity International, on the growing role of hedge funds in the French bond market, though the excerpt provided did not include her full remarks.