Credit Agricole Indosuez Asset Management will reduce its exposure to U.S. Treasuries by 10% of its global fixed-income portfolio if there are indications the U.S. economy is emerging from its doldrums. Bruno Crastes, head of global fixed income at CAI in London, says, "We think the bond market is now in a bubble and a lot a cash has moved to U.S. as protection against risk." He says a trigger for the move could be the war in Iraq or some other kind of geopolitical event. Crastes has already reduced U.S. Treasury holdings from 30% of the E6.5 billion global fixed-income portfolio, to 20%, because he believes Treasuries have become too expensive. CAI has positions at the very short and very long ends of the curve, and those are the positions Crastes has been selling.
Because the correlation between the G4 bond markets and the U.S. is very high, Crastes would like to reduce those positions as well. Crastes says he has not yet decided where to re-deploy his assets, but is considering emerging market debt.
Brazil's C-bonds look attractive, because they are already pricing in a default, which Crastes doubts will come to fruition. Crastes also likes Eastern European debt for example Russian, Croatian and Bulgarian bonds, however he tends to avoid the so-called converging countries--Poland, Czech Republic and Hungary, because their bonds are too expensive.
In addition to the E6.5 billion in global fixed income he manages, Crastes oversees E4 billion in currency overlay. CAI uses the J.P. Morgan Global Broad index and the Salomon Smith Barney Global Bond index as its benchmarks.
