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BlackRock bond head says speculators on ECB QE making "mistake"

[LONDON] Investors loading up on some of the euro zone's riskiest government bonds on expectations that the European Central Bank will buy them are making a mistake, BlackRock's head of European and global bonds said on Wednesday.

Market expectations that the ECB will be forced to resort to sovereign bond-buying as part of a broad-based quantitative easing (QE) scheme have shot up in recent months as the bloc tips towards deflation. "The market is very much taking for granted that quantitative easing through a government bond purchase programme is coming and I think there are many, many obstacles to that still to come," Scott Thiel, who oversees assets worth around US$100 billion for BlackRock, told Reuters. "If people are buying Spanish and Italian bonds because they think the ECB is going to buy them from them, I think that is a mistake." Many bank analysts predict a full-blown QE programme in the next six months, while some see it as early as November, as the ECB's efforts to ensure the recovery appear to be falling short.

Economists polled by Reuters saw a 40 per cent probability of the ECB purchasing sovereign bonds, up from 25 per cent at the start of the month.

Pimco, the world's biggest bond investor, remains overweight on Italian government debt, its European strategist said on Wednesday, quelling market fears that the departure of Chief Investment Officer Bill Gross could mark a change in direction.

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At the start of the year, Pimco, which manages US$2 trillion (1.58 trillion euros) worth of assets globally, said its position in high-yielding government bonds of the euro zone periphery, such as Italy's and Spain's, was the largest ever.

BlackRock, the world's biggest asset manager, said in May that one of its main bond funds - which Thiel oversees - had cut its holdings of peripheral euro zone government debt to their lowest since the height of the crisis. - Reuters