Single currency European investors haven’t pulled out of euro area bonds, but they have reduced their exposure to the EU periphery

As the standoff between Greece and its creditors continues, real money European investors have held on to their Euro area bonds over the last two weeks, maybe caring more about the announcement of QE than Syriza’s electoral win, but European multi-currency investors, US multi-currency investors and UK single-currency investors all reduced their net long exposure in recent weeks, according to J.P. Morgan’s latest European Client Survey.

Single Currency EU investors Euro area bonds

Tactical pullback in exposure to eurozone periphery

That doesn’t mean the situation in Greece hasn’t had any impact on European investors.

“Investors reduced their long exposure to the periphery vs. core countries for the second consecutive survey, but it still remains close to historical highs at 70% (from 80% a month ago),” writes J.P. Morgan analyst Antoine Gaveau.

This isn’t the first time that investors have sharply pulled back their relative exposure to the eurozone periphery, and exposure still hasn’t broken the floor of the upward trend going back to mid-2012, so it could be interpreted as tactical moves instead of a genuinely different stance on where the best opportunities are in Europe.

Core v Periphery exposure Euro area bonds

UK investors remain short on euro area bonds

Single currency investors in the UK have been net short since September 2012, and that trend continued in the last two-week period. US investors (almost necessarily multi-currency to be in the survey) the only other group to be net short on euro area bonds, and they also added to their short positions. Japanese multi-currency investors tipped slightly long after being completely neutral in the previous survey.

Single currency investors in the Euro area have the largest net long exposure, increasing it even more in the last two weeks. That’s enough to make the aggregate global position net long as well (presumably more Europeans are invested in euro area bonds in the first place), although the aggregate global position did pull back slightly.

Eurogroup meeting could have a big impact on future movements

There has been a lot of speculation about whether Greece’s new government will be able to reach compromise with the country’s creditors, which no doubt affected the exposure for international portfolios in the last two weeks. But we should have a better view after the Eurogroup meeting next Monday. If there is a major breakthrough (or a complete collapse in dialogue) it should show up in euro area exposures in the next two-week survey.

European duration survey Euro area bonds