The asset manager, which is headquartered in The Hague, hailed the Dutch election result as positive for EU stability, and therefore believes a smaller spread is warranted for peripheral bonds. To underpin this view, it pointed at a news-based ‘Economic Policy Uncertainty Index, which suggests political risk in Europe has decreased somewhat recently.
While this should be supportive of peripheral bonds, spreads haven’t really responded in such a way. Since the Dutch elections on 15 March, Spanish bond spreads have narrowed slightly, but Italian bonds spreads have actually increased.
“Moreover, recent macroeconomic data in the peripheral countries, like February’s purchasing managers’ index (PMI), have also been strong. We therefore upgraded eurozone peripheral government bonds to neutral within our fixed income allocation,” said NN IP.
However, improving economic performance is not universally regarded as a plus for peripheral government bonds.
“The recent improvement in economic data, elevated valuations and political risks in Italy and France make us cautious of both semi-core and peripheral government bonds,” Jeff Rosenberg, chief fixed income strategist at the Blackrock Investment Institute, said in a note today.