Robeco: Draghi liefert erneut

Details of this program will be announced next month. Together with the TLTROs this bond buying should increase the ECB’s balance sheet by a trillion euro. These measures reinforce the carry trade in the periphery. 

Italy 

The Italian government approved the judicial reform. The decree-law bill has to be passed by Parliament over the next 60 days. The reform mainly aims at reducing the backlog of civil cases. PM Renzi defined the reform as a “revolution” of the notoriously slow Italian judicial system and pledged civil cases will from now on take less than one year to be completed.

Spain 

Spain issued a EUR 1bn 50-year bond, demonstrating investors’ improved perception of Spain. Back in 2012 Spain issued mostly 2- and 3-year bonds, helped by the 3-year LTROs. The share of Spanish central government held debt by non-residents has risen to 45% of total debt. #

Portugal

Portugal issued EUR 3.5bn of a new 15-year bond, with a total order book of above EUR8 billion. This is the longest bond Portugal has issued since its bailout program. 

Robeco Euro Government Bonds 

We remain positive on peripheral bond markets as these bonds are attractive in the current low yield environment and the ECB’s and EU’s stance is supportive. The credit rating upgrade cycle is continuing, which draws new investors into peripheral bonds. 

This week’s policy action by the ECB confirms our case for the periphery. The coming TLTROs will support short dated peripheral bonds, and the announced bond buying program will likely be most beneficial to Italy and Spain. We remain overweight Spanish, Italian, Irish and Portuguese debt. Peripheral bonds make up 56% of the fund, more than half of which is Italian. Year to date the fund’s absolute performance is 10.49%*, helped by the strong performance of periphery bonds. 

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