Robeco: Peripheral bonds rally due to ECB announcements
Peripheral bonds rallied strongly after Thursday’s ECB meeting. Italian bonds have returned 1.2% this year, Portuguese bonds -2.2%, Spanish bonds 1.4% and Irish bonds 1.4%.14.03.2016 | 09:33 Uhr
Main market events
Peripheral bonds rallied strongly after Thursday’s ECB meeting. Italian bonds have returned 1.2%this year, Portuguese bonds -2.2%, Spanish bonds 1.4% and Irish bonds 1.4%.
ECB
Last Thursday the ECB expanded the asset purchase program with EUR 20 bln per month to intotal EUR 80 bln per month. The ECB will also start buying corporate bonds. Banks can borrow atthe ECB for four years at negative rates if they increase their lending to the real economy.
Spain
As expected, given the opposition from PP and Podemos, Socialist leader Sanchez failed in thesecond round to get a majority of the votes for his appointment as prime minister. If noconsensus on a candidate is found by May 2, a new round of elections will take place late June.Spain’s fiscal watchdog mentioned that the budgetary strategy lacks credibility and argued thatthe government should target a medium-term primary fiscal balance of 2.5% of GDP to reducethe debt to GDP ratio.
Italy
EU Commission warns Italy of risk of breaching EU fiscal rules under the Stability and GrowthPact. The EU has asked the Italian government to adopt corrective fiscal measures.
Ireland
Ireland’s GDP rose by 7,8% in 2015 (2014 5,2%), the highest growth in the euro area.
Portugal
Fitch revised the outlook for Portugal from positive to stable. Fitch said that the fiscalperformance was “well off-target in 2015”. The end to austerity after the elections and thegovernment's overly optimistic assumptions in the budget also played a role in Fitch’s decision.
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 improved growth as positives for peripheral debt. But after therecent rally we sold 3- and 4-year bonds from Italy and Spain because of their valuation.The fund has an overweight position in Ireland as strong economic growth is rapidly improvingthe Irish debt metrics, and a small overweight in Spanish longer dated bonds. We don’t hold anyshort dated bonds of Italy and Spain due to unattractive valuations. Peripheral bonds make up31% of the fund. Year-to-date the fund’s absolute return is 1.99%.