Robeco: Italien verspricht Steuersenkungen

• Italian government promises tax cuts

• Portuguese parliamentary elections on 4 October

Main market events 

Peripheral markets rallied in line with Germany this week. Italy outperformed Spain somewhat. The Greek parliament approved the second list of prior actions which was required to start the negotiations on the third bailout program. Portuguese bonds have returned 2.5% this year, Italian bonds 1.6%, Irish bonds 0.0% and Spanish bonds -0.5%.

Greece

Greece used its bridge loan from the EU to repay the ECB and clear its arrears with the IMF. It has to repay a further EUR 3.2bn to the ECB on 20 August. Negotiations on the 3rd bailout program have just started. These need to be concluded in 2-3 weeks to allow a first disbursement from the ESM in time to pay the ECB.S&P raised Greece’s sovereign credit rating to CCC+ from CC- with a stable outlook. The upgrade follows the recent agreement with Greece’s creditors. 

Italy

Prime Minister Renzi pledged to introduce up to EUR 35bn of additional tax cuts over 2016-2018. The overall plan for tax cuts is part of a so-called pact that Renzi offered to voters which consists of making structural reforms in exchange for tax cuts. 

Spain

The Spanish ‘Authority for Fiscal Responsibility’ warned that deficit targets for 2015 might be missed, mainly due to fiscal overshooting from regional governments.
PortugalPortugal will hold national parliamentary elections on Sunday 4 October. Polling data put support for the socialist opposition party slightly ahead of the ruling coalition. Portugal has no anti-Europe party of any significance.

Robeco Euro Government Bonds

We have shifted our stance on periphery to cautiously optimistic. The fund closed its underweight in Italian bonds. We continue to see the ECB’s QE program, the generally supportive stance of EU policy makers towards the periphery and the improvement in growth as positives for peripheral debt. On the other hand Greek risks remain. Negotiations on the third bailout program and possible debt relief still have to take place and the implementation of all these measures will be difficult. The fund remains overweight positioned in Irish bonds.