Mr. Alan van der Kamp, Vice President, Client Portfolio Manager -responsible for representing Robeco’s fixed income investment team on its key capabilities towards investors in the Netherlands, Germany, Spain, Nordics and Latam- thinks that, although valuations generally appear to become less attractive in fixed income universe, the technical factors currently are much stronger than the valuations. Thanks to the support to ECB and this factors, he foresees further spread tightening, in segments as European high yield, subordinated financial bonds and peripheral government bonds. “We therefore currently favor European bonds compared to US bonds”, says in this interview with Funds Society, as the FED will start hiking rates in the second half of 2015.
Are bonds exhausted?
So far this year bonds have performed quite strongly across the board. Although valuations generally appear to become less attractive, the technical factors currently are much stronger than the valuations. This is particular the case in Europe, where the ECB support leads to strong demand for credits and higher-risk asset classes such as high yield and subordinated financial bonds. Also, peripheral government bonds still carry an interesting premium.
Now that prices have been adjusted, is the emerging debt a new source of value?
Value of emerging debt assets indeed looks more favorable after a period of underperformance. Particularly emerging credits stand out relative to developed markets credits while balance sheets of emerging credits are definitely not in a worse state. For local sovereign debt we see quite large differences. Some markets look attractive, but generally economic activity is still subdued which doesn’t help currency performance.
In the developed world ... the story seems opposite in Europe and USA. Is there a risk in USA with the imminent rise in interest rates by the Fed?
Definitely the central bank support momentum in Europe is stronger than in US. We therefore currently favor European bonds compared to US bonds. We expect the FED to start hiking rates in the second half of 2015.
Do you expect a European QE?And, how will influence the European bond markets?
For now the ECB has announced the buying of secured bonds and the TLTRO programme. If that would not be sufficient, then we expect the ECB to expand its support programme to other bond categories.
Is there room for further narrowing of spreads on European bonds by the ECB, or already exhausted?
For some pockets in the markets we foresee further spread tightening, such as European high yield, subordinated financial bonds and peripheral government bonds.