Robeco: Spanish GDP driven by government spending
Spanish Q1 GDP growth came at 0.8%. The main driver was consumer spending, but also due to a strong increase in government spending. As Spain already missed last year ‘s deficit target, this doesn’t bode well for the 2016 deficit target.
30.05.2016 | 09:04 Uhr
Main market events
Market sentiment was positive this week, resulting in strong performance of peripheral bond markets. The Greek funding deal and the decrease in Brexit risks are relevant factors for the rally. Spreads are back to the levels from the beginning of the month. Italian bonds have returned 1.92% this year, Portuguese bonds -1.28%, Spanish bonds 2.72% and Irish bonds 2.62%.
Spain
The European Commission was criticized by Dijsselbloem and Schauble as it decided to postpone the possible fining of Spain and Portugal for their excessive deficit until July.
On the political front, socialist leader Sanchez ruled out forming a government with Podemos due to doubts Podemos will support him as PM candidate.
Portugal
Rating agency Moody’s mentioned this week that Portugal’s relatively high public and private debt is a significant drag for its growth prospects, which also is a constrain for the sovereign credit rating. Moody’s also expects the fiscal deficit to be 3% of GDP this year, overshooting the government’s target of 2.2%.
Greece
The Eurogroup agreed to release another tranche of EUR 10.3bn to Greece, which enables Greece to pay maturing bonds during the summer. The agreement with Greece was positively received by the market, which added to the rally in the peripheral bond markets.
Robeco Euro Government Bonds
We continue to see the ECB’s QE program as supportive for peripheral debt, but political risks are rising in the peripheral countries and growth is no longer improving. As consensus positioning is overweight in the periphery we have become more cautious with respect to the periphery.
We continue to have an underweight position in both Spain and Italy given the evolving political risks and since the current spread level makes the periphery vulnerable. We don’t hold any short dated bonds of Italy and Spain due to unattractive valuations. We have an underweight position in 10 year Italy and Spain. Peripheral bonds make up 16% of the fund. Year-to-date the fund’s absolute return is 3.36%.
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