Responsible for managing home Convictions Asset Management, Hezez Alexander returns to the crisis in the euro area and bond markets. He said the current situation is less critical than that which prevailed in late 2011, but believes that the European Central Bank should act more decisively. Finally, it considers possible a rise in interest rates of French government bonds over the next week …

Capital.fr: In recent months, the euro / dollar has changed little, despite the increased fears about the crisis in the euro area. How do you explain this evolution?

Alexander Hezez: Indeed, he remained enrolled between terminals of 1.28 and 1.33, supported by improved current account balances of Member States of the euro area. In Germany, but also in peripheral countries such as Spain and Italy. The latter, with the crisis, given their reduced imports, while exports were well kept. Thus, the euro does not need external financing in theory. The dollar has strengthened recently, however, certain elements in its favor. First, measures of monetization of the monetary authorities should now be made especially of Europe, while a third quantitative easing program is a hypothesis less likely the United States.

Then, political tensions in the monetary union, including Athens, weigh on parity. For some countries, the script output in the euro area resurfaced, with serious consequences for the banking sector. French elections but this has had less impact on the euro. The outcome was already anticipated, and anyway, about measures to promote growth is not an aberration, since most countries have practiced austerity in recent quarters do not seem to remove tangible benefits.

Capital.fr: The recent retreat of the movement of bond yields of peripheral European state seems to have halted …

Alexander Hezez: For countries like Spain, it flirts with the level of 6%, a level to watch closely … The situation is less critical than six months ago, even when interest rates in the short term were high. Both LTRO (refinancing long-term European Central Bank, banks Monetary Union, made at very low interest rates, Ed) had the merit to allow states to borrow against deadlines short at a cost attractive, which has eliminated the default risk of the most fragile.

However, sovereign bond yields and ten years must always remain below the threshold of 6%, otherwise the higher burden of debt will clear the room for maneuver of states, given the amount of debt affected. Austerity policies combined with high interest rates would not pay off. Spain is the country most vulnerable, and also one that was most disappointing. Its budget execution proved wrong, while large banks in the country, which were major global institutions before the crisis, suffered a net decommissioning, because of swelling bad debts linked to the explosion of the housing bubble .

Capital.fr: Major European bond issues are expected in the coming months. Who will support it, while neither foreign investors nor domestic investors do not seem to shake the door?
Hezez Alexander: We can indeed ask the question … The MES (European Stability Mechanism, Ed) may be involved, but it was not until July. In the meantime, the demand for sovereign bonds should remain low. Banks in peripheral countries, who had purchased large amounts of domestic borrowing, no longer want to continue as they are in trouble. As the ECB does not act, the Spanish bond yields continue to climb. The monetary authority will have to act more strongly. This is the condition we could then see a return of foreign investors. The national saving could also be involved, as in Belgium, which is consistent with a reduction of country risk. The flat country enjoys a high level of savings, like France, Germany and Italy.

Capital.fr: Why is the interest of France also remains low, despite the importance of its financial imbalances and problems of its economy?

Alexander Hezez: Our country is, despite its difficulties, AAA (two out of three rating agencies, Ed), while it is true that the pay gap with Germany has increased. France retained for the time of favor with investors. It is not excluded that the interest rates of government bonds increases in the coming weeks. Indeed, the difference in treatment with Italy is less and less justified. Our neighbor has a strong industrial base, and its public debt, although high, remained fairly stable in recent years.

France in contrast sees its trade balance to deteriorate steadily. She needs a large external financing … There is increasingly a decorrelation between the remuneration of corporate bonds and that of hexagonal sovereign borrowing. Hence the idea that the French state is no longer a reference to determine the yield of corporate bonds.

Capital.fr: The return of Germany is at an historic low, less than inflation. Investors do not they may end up settle their positions?
Alexander Hezez: At 1.5%, the yield on the ten-year sovereign German is indeed below inflation. Remains that Germany is not an isolated case. The Swiss debt appears even lower pay.

Obviously, investors will still need to invest their savings in assets completely secure. But these are rare, hence the low yields. In case of explosion of the euro area, the speakers being placed on German bonds will find themselves with assets denominated in marks, which will generate an additional cost. However, if fears about the European crisis were to fade, the German bond prices, then abandoned, could loosen, which would result in capital losses for investors.

Capital.fr: The decline in inflation and weaker growth in the world cause the central banks of emerging countries gradually reduce their interest rates. Sovereign bonds of emerging countries do they constitute investment leads to follow?

Alexander Hezez: The country risk in emerging markets tends to decrease, and their overall financial situation is now better off than the rich countries. However, the compensation of emerging sovereign bonds is higher than that of loans advanced countries.

However, the context is not very favorable to emerging currencies, as in times of crisis, they are traditionally affected by withdrawals of capital from investors in rich countries. A continued slump in Europe would affect China, the old continent is its main customer. Nevertheless, the country’s currency, the yuan should revalue in the next few years.

Indeed, the misdirection of export markets will encourage Beijing to encourage consumer spending, and a revalued currency would stimulate the purchase of imported goods … However, the renminbi is undervalued objectively, at present, if are measured in purchasing power parities …

As applications for credit (- 19.39%) that the credits provided (- 24.1%) have declined over the first three months of the year. Involved: the elimination of certain tax incentives.

The mortgage market fell during the first quarter of 2012 compared to the previous quarter, following the removal of certain tax incentives, said Thursday the Professional Union of Credit.

As applications for credit (- 19.39%) that the credits provided (- 24.1%) have declined over the first three months of the year.

More than 48,000 loans have been granted (excluding refinancing), for a total of 5 billion euros. “The number of mortgage loans during the first quarter of 2012 is virtually unchanged from the first quarter of 2010,” said the UPC.

The federation also notes that the number of credits renovation (approximately 12,600) has dropped by nearly half, while the number of loans for construction fell by a third party (around 5500).

The amount of lending is also down (- 10.66%). The average amount borrowed for the purchase of a home is just under 133,000 euros.

The Spanish Minister of Economy, Luis de Guindos, believes that the nervousness of the markets vis-à-vis Spain may continue because of “doubts about the European project” notably fed by fears over the ability of regions Spanish to reduce their deficits.

“There are still doubts about the European project, and in this sense, the volatility of situations like those we have experienced (note, last week) can happen again,” said Minister in an interview published Monday by the newspaper El Mundo.

The 10-year yield bonds of Spain topped 6% Monday morning and the risk premium Spanish, which measures the difference between long-term rates in Spain and Germany, reached its height when approaching two emissions tests Tuesday and Thursday.

The Madrid Stock Exchange gave up 0.25% at 12:30 (10:30 GMT).

But “Spain will not ask for a bailout,” the country “has absolutely no problems or urgent funding needs,” repeated the minister.

“Spain has already financed 50% of the needs of the Treasury in three months” and banks have “sufficient liquidity to meet the deadlines the next two years,” he said.

But he acknowledged that “for Spain, there are three fundamental doubts. First, the ability of autonomous regions to meet their deficit target, because we must take into account that two thirds of exceeding last year are their responsibility. “

The second is an austerity policy “which can lead to lower growth, with unemployment already affects 23% of the workforce”.

And “the third question is that this growth can also have a lesser impact on banks” that have accumulated a heavy rate of bad loans since the bursting of the housing bubble in 2008.

Spain recorded a deficit of 8.51% of GDP in 2011 against 6% pledged, of which 2.94% due to regions that have exploded the target of 1.3%.

Luis de Guindos calculates that regions “must finance 50 billion euros in 2012,” admitting that they “have enormous difficulties of market access” to refinance.

Their problem is “they have accumulated a huge amount of bad debts that forced the government to clean up the accounts by a syndicated loan of 35 billion euros.”

“The government will drop any autonomous community” but should, in return, keep their deficit reduction target, the Minister said.

Madrid is committed to reduce its public deficit to 5.3% in 2012 but many experts doubt the ability of countries to achieve, partly because of a decline of 1.7% of projected GDP this year.