Investment Banker Marks: Investors Won’t Test Euro Zone

In spite of recent flare-ups in Cyprus and Italy, the eurozone crisis seems to be contained for the moment. Christopher Marks, global head of debt capital markets at BNP Paribas, is certain that speculation on an impending breakup will not take place. “Among the major investors, … any fundamental risk of eurozone breakup is very, very difficult to play,” he says. “Investors have internalised the reality that central bankers are comfortable operating in a much broader range.”

No Great Rotation forthcoming
However, this does not mean that investors believe in a sudden reversal of the eurozone fortune. On the contrary, despite much recent talk about or a momentous shift of money from debt into equity, dubbed the “the Great Rotation”, Marks believes that investors will continue to allocate funds conservatively, leading to a continuation of the bond boom. “For prudential or lack of clarity reasons, most of the money will remain in the fixed income market,” he says.

Marks does add that investors may begin expecting higher yields. “You can have argument whether the valuation has gone too far … and there may be an easing up of that very tight price pressure,” he says. “But in terms of fundamental allocation it is very difficult to see a structural change in the course of this year, especially given the very sober economic forecasts for the rest of the year.