“Without better growth, in any part of the currency union, debt woes are bound to return and investors wasted little time in reducing exposure,” says Geoffrey Yu, strategist at UBS.
Yu said the price action has revealed that the current recovery in eurozone sentiment was based on extremely fragile foundations.
“We doubt asset managers would want to increase positioning beyond what they already have,” he says.
Euro flows - 5-day and 20-day moving averages and TWI
The figures showed corporates were net sellers of EURUSD for the eighth consecutive week – the longest period since the eruption of heavy eurozone risk aversion in the second half of last year.
UBS said the unwillingness of corporates to continue holding euro assets must represent a concern for the regional financial system.
Any decline in corporate savings would deprive the banking sector of a main source of liquidity, the bank said, exacerbating money-market tensions, which have been so clearly identified by the European Central Bank (ECB).
Meanwhile, flow data from Bank of New York Mellon, the world’s biggest custodian bank with $26 trillion under custody and administration, revealed investors were showing renewed concerns over eurozone peripheral debt.
That could suggest that the single currency’s honeymoon period after the ECB’s second long-term refinancing operation and the second bail-out of Greece might be about to end.
Indeed, BNY Mellon’s iFlow data showed a sharp sell-off in Italian, Portuguese and Spanish debt from real money investors during the past week.
Neil Mellor, strategist at BNY Mellon, said it was clear that investors were concerned over the concurrent deleveraging of both the public and private sectors in the eurozone and the resulting negative growth implications.
He said despite the relative calm that had prevailed across markets after the conclusion of the Greek bail-out, Spanish yields had, slowly but surely, been creeping back up again.
“More worryingly, however, is the fact that real money investors have paid little heed to developments elsewhere and have focused entirely on a continued reduction in their exposure to Italian debt,” says Mellor.
“When we also consider what appears to be renewed sharp sales of fixed-income assets in Portugal and Spain, then it would seem that the prevailing calm is not all it would appear to be.”