09.10.2017 | 10:23

Robeco: The Catalan referendum and the effect on government bonds

After the escalation of tensions that followed the Catalan referendum that took place on 1 October, spreads in Spain have widened significantly this week. Contagion effects hit Italian and to a lesser extent Portuguese spreads.

Main market events

ECB Executive Board member and chief economist Peter Praet discusses the benefits of buying less government bonds per month but for a longer period. This tends to reinforces the low for longer guidance on rates against a backdrop of low forecasted inflation. Italian bonds have returned -0.25% this year, Spanish bonds 0.01%, Portuguese bonds 10.18% and Irish bonds 0.29%.


In the aftermath of the referendum, which opened up a period of political uncertainty in Spain, S&P placed Catalonia rating on negative credit watch this week amid growing concerns about its ability to fully and timely refinance its short-term debt. The president of the Catalan parliament reiterated an offer for international mediated talks with Madrid, given rising dissensions among Catalonian leaders about the opportunity to call for independence. PM Rajoy refused to engage into negotiation as long as the regional government does not withdraw its independence plan. In this context, regional elections appears increasingly likely, whether called by the Catalonians or the central government of Madrid.


Two legal but non-binding referendum will take place in Lombardy and Veneto on 22 October. Unlike in Catalonia , they will not ask for independence but for more regional autonomy. If the Yes wins, the votes will result in a draft bill that will have to be approved by a majority in the national parliament. The traditional right-wing party Northern League, which governs both regions, may benefit the most from a Yes ahead of the national election.


The mood surrounding the third bailout among Greece’s international creditors has significantly improved after the IMF’s turnaround. The IMF now states that there are no concerns about the stability of Greek banks and that an asset quality review is not necessary. Meanwhile, the Eurogroup confirmed commitment to deliver debt relief, once reforms are completed.

Robeco Euro Government Bonds

We have maintained the underweight position in Italian government bonds as fundamentals remain weak and political risk is still high. The market has also to adjust to the gradual phasing out of the ECB’s bond buying program. But we moved to an overweight position in Spanish bonds after the significant spread widening resulting from the conflict between Catalonia and the central government. Current tensions are unlikely to harm Spanish strong fundamentals. Currently the fund is 33% invested in peripheral bonds compared to 40% in the index. Year-to-date the fund’s absolute return is -0.53%. (Robeco Euro Government Bonds, gross of fees, based on Net Asset Value, YTD October 5, 2017. The value of your investments may fluctuate. Past results are no guarantee of future performance.)