Robeco: Italian banking sector problems hurt markets
Market concerns around the large stock of non-performing loans of Italian banks are growing as no progress is made on sector consolidation, while chances of bail-ins of banks’ investors, like at Novo Banco, have increased.25.01.2016 | 10:39 Uhr
Main market events
Peripheral bonds saw the sharpest daily sell-off since the summer of last year on Wednesday, butpartly recovered the next day, as Draghi said during a press conference that the ECB has thepower, willingness and determination to act if needed. Italian bonds have returned 0.3% thisyear, Portuguese bonds -2.0%, Spanish bonds 0.3% and Irish bonds 1.1%.
ECB
ECB President Draghi said on Thursday that the ECB will review and possibly reconsider itsmonetary stance at the next meeting in March, as downside risks have risen again. Next to afurther cut in the deposit rate the ECB might also further increase its asset purchase program.
Portugal
The Portuguese government approved the 2016 draft budget, which targets a fiscal deficit of2.6% of GDP. This is slightly better than the 2.8% which was agreed with the left-wing coalition,but still well above the original 1.8% target. Debt/GDP ratio is projected to fall to 126% in 2016from 129% last year.
The Bank of Portugal has offered to partly compensate losses imposed to bondholders of NovoBanco, following the transfer of EUR 2bln from Novo Banco to bad bank ‘Banco Espirito Santo’.
Italy
Market concerns around the large stock of non-performing loans of Italian banks are growing asno progress is made on sector consolidation, while chances of bail-ins of banks’ investors, like atNovo Banco, have increased. The ECB’s Single Supervisory Mechanism is planning to sendinspectors to a group of banks to acquire additional information on bad loan management.
Robeco Euro Government Bonds
We continue to see the ECB’s QE program, the generally supportive stance of EU policy makerstowards the periphery and the improvement in growth as positives for peripheral debt. But thesepositives are partly reflected in current valuations. The general risk off sentiment in financialmarkets favors a somewhat cautious stance towards peripheral bonds.
The fund has overweight positions in Portugal and Ireland and underweight positions in Italy. Wedon’t hold any short dated bonds of Italy and Spain due to stretched valuations. We likePortuguese bonds as they benefit disproportionately from QE. Strong economic growth is rapidlyimproving the Irish debt metrics. Peripheral bonds make up 32% of the fund. Year-to-date thefund’s absolute return is 0.94%.