Robeco: Portuguese 2016 budget plan at risk
Although the Portuguese parliament approved the 2016 budget, in the coming months the EU commission will reassess 2016’s budget plans, given risks of non-compliance with the Stability and Growth Pact.21.03.2016 | 08:55 Uhr
Main market events
Peripheral bonds continued last week’s rally, and outperformed core and semi-core bonds.Italian bonds have returned 2.1% this year, Portuguese bonds -1.0%, Spanish bonds 2.1% andIrish bonds 2.2%.
Spain
Spanish newspaper El Mundo reports that S&P is about to downgrade Catalonia rating toselective default. Catalonia has requested Madrid for additional funding to cover liquidity needsof the regional government. In addition, it requested Madrid to allow for a delay of payments ofshort-term debt to local banks. Catalonia’s request is rather delicate, given the tensions betweenCatalonia and Madrid.
Italy
Prime Minister Renzi repeated his request to exclude certain cash outlays, related to co-financingof EU funded projects, from the calculation of the EU fiscal budget. In addition, Renzi called forhigher public and private investments and suggested to cut taxes on households in order toreduce the risk of deflation.
Portugal
Although the Portuguese parliament approved the 2016 budget, in the coming months the EUcommission will reassess 2016’s budget plans, given risks of non-compliance with the Stabilityand Growth Pact. Should the commission require additional fiscal consolidation measures, thenthe parliament will need to renegotiate the budgetary plan of 2016.
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. Nevertheless,we took profit on our long dated Spanish bonds after the recent rally.
The fund has an overweight position in Ireland as strong economic growth is rapidly improvingthe Irish debt metrics. We don’t hold any short dated bonds of Italy and Spain due to unattractivevaluations. Peripheral bonds make up 25% of the fund. Year-to-date the fund’s absolute return is2.90%.