Main market events
Peripheral bonds underperformed German bonds last week. The general risk-off sentiment inglobal markets also affected peripheral bonds. The issuance of EUR 9bln of Italian 30-year bondswas a bit too much to digest for markets in this environment. Italian bonds have returned 0.6%this year, Portuguese bonds -1.6%, Spanish bonds 0.9% and Irish bonds 1.5%.
The pro-independence Catalan regional government has officially kick-started the secessionistprocess by setting up committees to create the first independent Catalan State institutions, like aSocial Security system, a Finance Ministry and a Treasury.
The Troika of IMF, ECB and EC concluded its third post-program surveillance mission this week.The institutions expect Portuguese growth to moderate as the structural reform progress lostmomentum and urged the Portuguese government to significantly increase its efforts to reducethe budget deficit and comply with the European fiscal rules.
Rating agencies are skeptical on the Italian bad bank agreement. S&P said the mechanism mayfall short of the target of reducing the stock of non-performing loans, while Moody’s said itrequires banks to recognize large additional loan losses.
Prime Minister Tsipras urged Greece’s creditors to quickly give a verdict on the pension reformproposal and complete the first review as protests against his government are rising. A generalstrike brought some 40,000 protesters in the streets of Athens on Thursday.
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 thegeneral risk off sentiment in financial markets favors a cautious stance towards peripheral bonds.We did however use this week’s spread widening to add somewhat to our Spanish exposure.The fund has overweight positions in Portugal, Spain and Ireland and underweight positions inItaly. We don’t hold any short dated bonds of Italy and Spain due to stretched valuations. We likePortuguese bonds as they benefit disproportionately from QE. Strong economic growth is rapidlyimproving the Irish debt metrics. Peripheral bonds make up 36% of the fund. Year-to-date thefund’s absolute return is 1.78%.