Robeco: ECB surprises market with QE adjustments
The ECB surprised the market by extending the QE program until the end of 2017 and lowering the monthly purchases from EUR 80bn to EUR 60bn. Market consensus was an extension up to September 2017, while keeping the size at EUR 80bn.12.12.2016 | 08:29 Uhr
Main market events
The market response on the No-vote in the Italian constitutional referendum was rather muted. Italian spreads increased a few basis points on Monday but tightened on Tuesday and Wednesday. The much anticipated ECB meeting on Thursday had a larger impact on spreads. Especially Portuguese spreads increased significantly after the meeting. German yields moved up in the long-end of the curve, as QE purchases will be focused more on shorter maturity bonds. Italian bonds have returned -0.74% this year, Spanish bonds 3.09%, Portuguese bonds -3.51% and Irish bonds 2.50%.
Italy
Last Sunday the Italians gave a clear message to the Renzi government with 60% voting No in the constitutional referendum. Also the turn-out of close to 70% was high. As a result PM Renzi stepped down this week, after having finished the budget for 2017. Looking forward, the most likely scenario is for the President to appoint a caretaker government under the leadership of Pietro Grasso or Pier Carlo Padoan, the internationally respected finance minister.
ECB
In addition, QE parameters were changed. It is now allowed to buy bonds below the deposit rate and bonds with a shorter maturity. ECB President Draghi stressed that the lower monthly purchases should not be seen as tapering. Still the monthly purchase volume and average maturity of purchases will decrease.
Portugal
The ECB did not increase the issue limit. The maximum percentage per bond that the ECB can buy will remain at 33%. Especially for Portugal this will mean that the ECB will need to reduce purchases further. Portuguese spreads did increase after the ECB meeting to levels close to year-to-date highs.
Robeco Euro Government Bonds
Currently we are positioned neutral versus the benchmark in Italian government bonds. Our fundamental view on Italy remains negative. Italy needs reforms to increase growth. Stronger growth is necessary to improve the sustainability of the public debt, to reduce bank NPLs and to reduce unemployment and hence political unrest. Rising yield levels are also unfavorable given Italy’s large public debt. We maintain our overweight position in Ireland. Irish bond spreads are attractive given the improved Irish fundamentals and its strong ESG scores.Currently the fund is 37% invested in peripheral bonds, versus 39% in the benchmark. Year-to-date the fund’s absolute return is 2.12%.