Robeco: Spanish political impasse continues

Main market events

Peripheral bonds outperformed already rallying German bonds this week. Especially Portugalrecovered from the sell-off in the beginning of the month. A surprise debt buy-back helpedsentiment towards Portuguese government bonds. Italian bonds have returned 0.7% this year,Portuguese bonds -4.0%, Spanish bonds 1.2% and Irish bonds 1.7%.

Spain

Final 2015 real GDP came out at 3.2%, mainly due to strong private consumption. This meansthat of the larger countries, Spain was the strongest growing economy in Europe.

The Spanish socialists reached an agreement with the centrist Citizens party this week. BothPodemos and Partido Popular already announced not to support this coalition, which makesforming a government very difficult. The vote for a new Prime Minister is scheduled nextWednesday. The formation of a government must take place within two months after this vote,or new elections have to take place end of June.

Moody’s downgraded the outlook for Spain to Neutral as the impact of structural reforms hasbeen smaller than anticipated and some major reforms have not been fully implemented.

Portugal

The Portuguese Parliament passed the 2016 budget. The budget targets a fiscal deficit of 2.2%,while real GDP is projected to rise by 1.8% and the debt-to-GDP ratio to fall to below 128%.

Greece

Greek negotiations on pension reforms are deadlocked as according to Greece the IMF is pushingtoo hard for further pension cuts. At the same time tensions between Greece and Europe arerising due to the refugee crisis.

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 therecent turmoil in financial markets favors a cautious stance towards peripheral bonds.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 up36% of the fund. Year-to-date the fund’s absolute return is 2.49%.

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