Robeco: Ireland beats fiscal targets

Main market events

Peripheral bonds could not keep pace with the rally in German bonds in the first week of theyear. Only Ireland managed to outperform, as 2015 fiscal data surpassed already elevatedexpectations. Italian bonds have returned 0.1% this year, Portuguese bonds -0.6%, Spanishbonds 0.0% and Irish bonds 0.5%.

Spain

Catalan Premier Artur Mas agreed to step down in favor of Charles Puigdemont to avoid newregional elections. This was enough to clinch a deal with the communist party CUP and form aregional government which will press ahead with their campaign for independence.

Portugal

Portugal’s central bank ordered the transfer of some senior bonds at Novo Banco back to the badbank that emerged from the breakup of Espirito Santo last year, effectively imposing losses ontheir holders. The transfer will help capitalize Novo Banco after the ECB’s stress tests inNovember showed a large shortfall.

Greece

The Greek government has sent its pension reform proposal to the creditors. A key change is tolink future pensions to paid contributions rather than earnings. The pension reform representsthe last missing reform for the first review of the bailout program to be completed.

Ireland

Ireland saw massive demand for its newly issued 10 year bond after the release of strong fiscaldata. Ireland’s deficit is expected to have dropped to -1.5% of GDP (original EU target -2.9%),while Debt/GDP has likely fallen to 94%, in line with the EU average.

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. We remain cautious towards Spanish bonds,as we expect the political uncertainty to continue in the first quarter of the year.The fund has overweight positions in Portugal and Ireland and underweight positions in Spanishbonds and short dated Italian bonds. On December 30 we closed our tactical underweight inItalian bonds with longer maturities. We like Portuguese bonds as they benefitdisproportionately from QE. Strong economic growth is rapidly improving the Irish debt metrics.Peripheral bonds make up 32% of the fund. Year-to-date the fund’s absolute return is 0.21%.

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