Robeco: Renzi pushes for September elections

Main market events

The week started with a risk positive sentiment supported by strong U.S. macro-economic data. Therefore the likelihood of a FED hike already in March has increased. The theme of political risks moved briefly to the background and as a result peripheral spreads were pushed lower. Markets interpreted the ECB minutes as supportive for the periphery as well. On Friday, the political risk theme moved back to the foreground on French headlines, with significant higher peripheral spreads as a result. Italian bonds have returned -2.21% this year, Spanish bonds -1.25%, Portuguese bonds -0.57% and Irish bonds -1.86%.

Italy

Former PM Renzi is pushing to organize a party congress in April, with the goal to be re-elected as  the party leader and to organize early elections in September. The move of Renzi is not welcomed by the left wing side of the PD party and some members have already threatened to leave the party. Elections before Summer are now highly unlikely, but increasing political fragmentation is not positive. Italian spreads thus moved higher on the news.

Spain

The Spanish constitutional court ruled against proposals from the Catalan local government to organize a referendum on a Catalan exit. Madrid had warned local government officials that they should comply with this decision, or face otherwise a suspension or a fine. This results in a further increase of tensions between Madrid and the Catalan region. 

Greece

On the back of the recent tensions between Germany, Greece and the IMF on completing the bail-out review, some Greek news sources mention that Greek banks saw deposit outflows. Although the size of the withdrawals was still modest (EUR  2.5bn) in January, it is a turn from 2016 were the level of deposits were more or less stable. 

Robeco Euro Government Bonds 

We re-initiated an underweight position in Italy this week as spreads had declined. Our fundamental view on Italy remains bearish as Italy needs reforms to increase growth. Stronger growth is necessary to improve the sustainability of the public debt, to reduce banks’ NPLs and to reduce unemployment and hence political risks. 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 34% invested in peripheral bonds, versus 39% in the benchmark. Year-to-date the fund’s absolute return is -1.42%*.

* Robeco Euro Government Bonds, gross of fees, based on Net Asset Value, YTD February 16, 2017. The value of your investments may fluctuate. Past results are no guarantee of future performance.