Mispriced European Debt

Published on
October 30th, 2018
16 minutes

Mispriced European Debt

Trade Ideas ·
Featuring David Levine

Published on: October 30th, 2018 • Duration: 16 minutes

Central banks have distorted global bond markets, and therefore political risk for the past decade. As this comes to an end, how will it impact investors? David Levine, founder of Odin River, joins Real Vision’s Brian Price to discuss upcoming catalysts and how to profit from mispriced European sovereign debt. Filmed on October 25, 2018.


  • SB
    Stewart B.
    21 November 2018 @ 20:19
    The future is unknowable but what seems risky in this trade is that the ECB just hoovers up the German debt. I wouldn't want to be short Gilts with the ECB buying inelastically.
  • PD
    Paul D.
    5 November 2018 @ 11:07
    Digging the coffee tables
  • NS
    Niels S.
    3 November 2018 @ 13:20
    I agree with some of the comments below about the difference between European Union and the Euro area, which is not clear in the interview. The other one about the risk free rate: I don't see why the US should be risk free and Bunds not. Lastly, I agree with the comments the you can't just compare absolute yields in different currencies without talking about FX risk/hedging costs. With regard to the actual trade idea, it would be interesting to know why the trade would work now. As already pointed out below, these "wrong yield levels" in bunds have been around for a long time. Why would it now be a good time to short? QE in the Eurozone may be ending, but re-investments will continue. Would love to hear more about the expected catalyst.
  • WM
    Will M.
    2 November 2018 @ 14:50
    Good discussion. German debt is tied up with the ECB. There is no real market for European debt. Draghi will desperately try to hold this together until he leaves early next year so as to be out o the immediate firing line when the EU financial system collapses
  • DS
    David S.
    30 October 2018 @ 20:02
    The European Economic Community is a viable trading system. It is different from the countries within that system that use the Euro instead of their own national currency, thereby eliminating their sovereignty. The biggest risk to the European Economic Community has always been the Euro. DLS
    • AJ
      Aaron J.
      31 October 2018 @ 21:01
      Completely agree. If this point was understood by the European public, Europe as a whole would be far better off. Unfortunately, the common currency is viewed by most Europeans as a proxy for complete EU membership. Greetings from Germany (that place with the huge current account surplus).
    • DS
      David S.
      1 November 2018 @ 06:23
      The major flaw in the Euro is sovereignty. There is no way that all Euro countries can march to the same drummer. Chancellor Merkel tried her best, but debts and immigration were too much. No one could have done more, but economics and sovereignty were simply against her. IMHO it will take time, but the Euro cannot survive in its current form. DLS
  • RS
    Ruben S.
    31 October 2018 @ 08:10
    David Levine, are you really comparing one current account positive country, with debt/gdp like Germany with the US situation? saying that Germany should have 50bp risk premium over the US regardless of the debt dynamic and trade context is quit surprising... i think a better bet would be short Spain or Portugal or even France... as before Germany gets attacked on its debt those countries will be taken down!
    • SS
      Simeon S.
      31 October 2018 @ 16:09
      Agree short Italy is more attractive if you have this view. ECB would be insane to stop the bond program now. Also the idea that you get paid to short schatz is not any more true, you now have to pay to roll your shorts, the market has priced it, last time I checked.
    • DC
      Daniel C.
      31 October 2018 @ 21:07
      Agreed, whats more obvious is to anyone who understands fixed income is that you cant compare a yield in one currency vs a yield in another its not apples for apples - this view is just a big bet on the FX - so why not just short the Euro - simpler, and less easy to manipulate with ECB asset purchases
  • JH
    James H.
    31 October 2018 @ 19:31
    Wow. wtf is this guy talking about? Worst content I’ve seen from RV
  • MT
    Mark T.
    31 October 2018 @ 13:14
    Based on my recent travels in Europe I don't see any capacity for the public/citizenry to accept additional burdens from Eurozone high command. They will leave the union. Whether the states survive in their present form is uncertain. There may not be ANY way to profit from a series of events that results from sufficiently disastrous multiple economic and political system failures. Middle class working folks are putting their money into home improvements and rental real estate in search of yield and safety.
  • JF
    Jeppe F.
    31 October 2018 @ 05:54
    I normally find RV content quality quite high. But this guy has absolutely no clue. If you want to profit from euro instability you don’t short bunds, you buy them. That should be obvious from any chart of euro government debt over the past 10 years and any basic understanding of fixed income.
  • DS
    David S.
    30 October 2018 @ 19:55
    A much better point on Germany. If the Euro folds and Germany has to return to DMs, the economy and the banking system will have many more levels of risk. DLS
  • DS
    David S.
    30 October 2018 @ 19:52
    Good point that the European Commission should have allowed this one budget go through. Now the Euro Central Bank will try to force Italy to comply by continuing to lower its purchases of Italian debt. This will increase Italian bond interest payments and bust the Italian budget anyway. A lose/lose game of chicken has been going on with several Euro countries for a long time. The Euro was doomed from the start. It is surprising how long a political currency has lasted. DLS
  • DS
    David S.
    30 October 2018 @ 19:35
    I know that "risk free rate" is a classic term, but it should be eliminated. Every bond in the US or any other bond market has risk. I am not trying to correct you, but the whole concept of a risk free rate. DLS
  • NI
    Nate I.
    30 October 2018 @ 19:28
    Feels like I've been sitting in this dead money bond short forever. I hope you are right because at some point it becomes evident that CBs suppress rates indefinitely and I throw in the towel.
  • MH
    Marian H.
    30 October 2018 @ 19:22
    It would have been nice to hear how he approaches the currency risk in his long UST vs short Bunds trade
  • tk
    theo k.
    30 October 2018 @ 18:42
    if the EU disintegrates, bunds will trade at a negative yield so not sure. Scenario that you make money is if all is well and there's inflation in Europe.
    • tk
      theo k.
      30 October 2018 @ 18:43
      though shorting the 2yr at negative yield, is not a bad trade for sure ;)
  • HC
    Howard C.
    30 October 2018 @ 14:59
    Quite a bold move he is expecting, very nice to see people with an opinion put it out there for everyone to see. Nice interview, thank you Mr. Levine.
  • AP
    A P.
    30 October 2018 @ 12:31
    Sharp and with multiple scenarios (though none including any EU improvement). Thanks David/Brian!