Italian bonds have returned 1.65% year-to-date, Spanish bonds 4.7%, Portuguese bonds 5.06% and Irish bonds 3.3%.
defied the geo-political turbulence and rallied sharply. Comments from
Salvini indicating that EU rules should be changed and not broken, added
to the enthusiasm. It’s highly unlikely however that the fiscally
conservative Eurozone countries would be equally enthusiast about
changing the Eurozone budget deficit rules. Moreover, on June 5, the EC
will publish it so-called Spring Package, which possibly could contain
some first steps towards opening an Excessive Deficit Procedure for
Italy. This could fuel tensions between the EC and the Italian
10y SPGB-Bund spread declined the past weeks and reached the
year-to-date low at 95bp. SPGBs were supported by the relatively benign
outcome of the general elections and relatively strong Spanish growth.
As European PMI’s indicate the manufacturing sector remains in
contraction and the periphery growth trend is weakening, we are cautious
about the prospects of further SPGB outperformance from here. Also as
we are awaiting more clarity around PM Sanchez’s ability to form a
10y Irish-Bund spread was subject to the breakdown of UK cross party
Brexit negotiations. Irish bonds underperformed and could be prone to
further volatility over the next weeks. Discussion around a hard Brexit
is likely to gain traction, especially now it is likely that a Brexiteer
will be the successor of UK PM May who announced her resignation.
minutes of the April ECB Governing Council meeting had a dovish tone as
“inflation remained uncomfortably below the Governing Council’s
inflation aim and market-based inflation expectations had receded”. As
the minutes are in fact old news and economic headwinds in Europe have
increased since April, the upcoming June 6th governing council meeting
could have room to surprise with favourable terms for the cheap bank
lending tool, the TLTRO3.
Robeco Euro Government Bonds
around upcoming events remain. We continue to have a cautious bias in
the portfolio. Investments in peripheral bonds remained at 28%, about
12% below the level of the index.
Year to date the absolute return of the fund is 2.89%*.