Argonaut's Norris: Talk of the euro imploding is scaremongering

Ignis Argonaut's Barry Norris believes concerns over a possible euro collapse are overstated, despite S&P’s raft of downgrades last Friday putting further pressure on the single currency.

The manager argues ten-year yields for the vast majority of the eurozone have tightened, with only Italy, Portugal and Greece yielding more going into 2012 than they did at the start of 2011.

He added with yields falling the European fixed interest market is in a healthier position going into this year than it was at the start of 2011.

Norris, who heads up the top quartile £285m Argonaut European Alpha fund, said the S&P downgrades failed to highlight bond yields on the whole have declined over the past year.

"The suggestions and headlines which state the euro is about to implode are complete scaremongering - as the reality is at the start of the year only Italy, Portugal and Greece are yielding more than they were at the start of 2011," said Norris.

"France may have lost its AAA credit rating but its yield fell from 3.33% to 3.05% over the past year and tightened considerably from November when it was at 3.7%.

"I am still bearish about the eurozone crisis being solved this year but the tightening in the European government bond market over the past year shows investors have been more willing to part with cash despite all the woes attributed to the continent."

Norris said another positive development is the European corporate bond market will be a beneficiary of the European Central Bank's three-year long term refinancing operation, in which banks are able to borrow capital at 1% in exchange for collateral.

"The ECB refinancing operation is going to have a positive effect on the corporate bond market and will potentially spill over into the sovereign market as well - which will offset some of the negatives facing the continent," said Norris.

Voicing his opinion on last night's decision by S&P to downgrade the European Financial Stability Facility (EFSF), Norris said the move will not affect market sentiment.

He said as the EFSF is not seen as a solution to the eurozone debt crisis, European markets will not be swayed.

"The EFSF is not viewed as the silver bullet to solve the debt crisis as ultimately all it is doing is moving around debt from one sovereign onto another," added Norris.

"To solve the problems policymakers need to instil a European central bank and create financial institutions which will deal with the weaker and the stronger currencies."

 Source: Argonaut Capital Partners