Robeco: Irish Prime Minister election
The market sentiment during the last week was rather negative, resulting in a widening of peripheral bond spreads. Spreads versus Germany increased more than 10bp. Italian bonds have returned 0.99% this year, Portuguese bonds -2.68%, Spanish bonds 2.01% and Irish bonds 1.97%.06.05.2016 | 16:36 Uhr
Ireland
After three failed attempts to form a government between Fine Gael and Fianna Fail, both parties have agreed that Fianna Fail (center-right) will support Fine Gael (center) in a minority government. Both parties still require votes from the Independents, making the government rather fragile. Depending on the support from the Independents, Prime Minister Kenny will probably be elected today.
Italy
Governor of the central bank of Italy (Visco) send a clear signal this week that risk weighting of government bonds should not be changed from the current weight of 0%. Both the Netherlands and Germany advocate limiting banks holdings of home-country government bonds. On average, Italian banks hold more than 10% of their total assets in Italian government bonds, compared to 3% for German banks. The reason behind the idea to impose the restriction is to reduce the interdependence between governments and banks.
Spain
An internal vote among United Left (Communists) members showed that 85% approve a partnership with Podemos. This paves the way for both Podemos and United Left to form an alliance for the June 26 elections. Recent polls show that the left wing partnership could become the second largest political combination in number of votes.
Portugal
Rating agency DBRS kept its investment grade rating (BBBL) for Portugal with a stable outlook.
Robeco Euro Government Bonds
We continue to see the ECB’s QE program as supportive for peripheral debt, but political risks are rising in the peripheral countries and growth is no longer improving. As consensus positioning is overweight in the periphery we have become more cautious with respect to the periphery.
We continue to have an underweight position in both Spain and Italy given the evolving political risks and since the current spread level makes the periphery vulnerable. We don’t hold any short dated bonds of Italy and Spain due to unattractive valuations. We have an underweight position in 10 year Italy and Spain. Peripheral bonds make up 16% of the fund. Year-to-date the fund’s absolute return is 2.89%*.