Carmignac dumps German bonds, has no euro govt debt

LONDON (Reuters) - French asset manager Carmignac Gestion has dumped all its holdings of German Bunds and now owns no euro zone government debt, Deputy Managing Director Eric Le Coz said on Thursday.

The move reflects European investors' growing unease over Germany's contribution to any solution to the rapidly worsening euro zone crisis, including possible pooling of the bloc's debts.

This has led in recent days to a sell-off in Bunds, which had until recently benefited from safe-haven flows.

As the crucial second Greek election looms on Sunday and Spain's bank crisis shows no sign of easing, the cost of insuring exposure to German debt has surged to record highs.

Le Coz said the Paris-based company had held 5 percent of its multi-asset fund in Bunds which had represented its last stash of euro zone government debt. It manages 50 billion euros (41 billion pounds) in total.

"Ten days ago we moved a little bit in our funds, and particularly the big multi-asset fund...by selling all Bunds and by even getting a little bit short in Bund futures," Le Coz told Reuters.

"The Bund...had moved too far from risk-free to return-free, and when you have a return-free asset, you have risk on," he added.

Ten-year German Bund yields are now at 1.5 percent, after hitting record lows of 1.127 percent on June 1.

Le Coz said Germany's role in any future solution to the euro situation could further undermine its safe-haven status.

"If we go deeper in the euro zone crisis, for a country which has a sizeable weight in the euro zone, a solution would have to imply more (contribution) from the Germans and an increased burden on their shoulders which would be detrimental to the assessment of their credit quality."

Le Coz said the fund was positioned defensively with increased cash allocations and an overweight in U.S. Treasuries, though it still owns euro zone equities and corporate debt.

He said Carmignac Gestion had held no peripheral euro government debt in years and was not lured by the 6 percent-plus yields available in Spain and Italy. He said the fall in Bunds would put further pressure on the periphery as yield spreads as well as outright yields rise.

"If I buy and for some reason the yield goes to 8 percent overnight, who will buy it from me?" he said. "There is no buyer of last resort so I will be taking not just a yield risk but also a liquidity risk."

(Reporting by Sujata Rao and Carolyn Cohn. Editing by Jeremy Gaunt.)