ME HA GUSTADO ESTO QUE DICEN Interestingly, the word ‘Spain’ was not mentioned until more than half an hour had passed in the press conference, while he did not mention the word ‘Italy’ at all. To us, this demonstrates that these themes are becoming less idiosyncratic and more structural across the eurozone .
“la palabra España no fue mencionada hasta mas de media hora de la conferencia de prensa, mientras que no se menciono la palabra Italia. Para nosotros esto demuestra que estos temas están llegando a ser menos idiosincrásico”
Apuesta también más adelante por activos de más riesgo, por 4 razones, se ha evitado, de momento el precipicio fiscal americano, el programa de futura recompra de activos del BCE ha ayudado a bajar la prima de riesgo, el crecimiento chino sigue fuerte y el resultado de las elecciones americanas ha despejado dudas
Bullet from the Global Fundamental Fixed Income Team 10 January 2013
Comments on today’s European Central Bank (ECB) meeting and global themes from Scott Thiel, Deputy Chief Investment Officer of Fundamental Fixed Income and head of the Global Fundamental Fixed Income Team.
? The Governing Council of the ECB has yet again voted to maintain the benchmark interest rate at 0.75% and kept the deposit and marginal lending rates at 0% and 1.50%, respectively. Following today’s press conference we reiterate our view that the ECB rate cutting cycle is over.
? Although clearly citing downside risks to economic activity, ECB President Mario Draghi noted signs of improvement in both economic fundamentals and financial markets. His remarks focused in particular on markets, specifically referencing lower peripheral bond yields and credit default swap (CDS) levels, higher stock market indices and lower implied volatility in financial markets. While a strong upswing in economic activity may still be some way off, the need for further monetary easing appears to be waning.
? In addition, we also believe it is unlikely that the Outright Monetary Transactions (OMT) programme will be deployed over the next several months, with an increased chance that it may never actually go into operation. Draghi noted significant improvements in fragmentation and segmentation – two important catalysts in the creation of the OMT programme.
? Interestingly, the word ‘Spain’ was not mentioned until more than half an hour had passed in the press conference, while he did not mention the word ‘Italy’ at all. To us, this demonstrates that these themes are becoming less idiosyncratic and more structural across the eurozone .
? The press conference supports a new theme that we have recently been developing in our global bond portfolios, where appropriate - that of being underweight so-called ‘risk-free’ interest rates (US treasuries, German bunds, UK gilts and Japanese government bonds). We believe that, over the past few months, much of the uncertainty in the capital markets has been removed.
? In particular, four events have the potential to prompt global investors to move out of risk-free assets into either riskier assets or into their own businesses:
I. Chinese economic growth did not collapse but rather slowed in 2012 – removing the fear of a dramatic slowdown in global economic activity.
II. The ECB’s long-term repo operations (LTRO’S) and their announcement of the Outright Monetary Transactions (OMT) programme helped to dramatically reduce the tension in the peripheral markets.
III. The outcome of the US Presidential election was decisive – removing some political risk from the world’s largest market.
IV. The US fiscal cliff has been averted – at least for the moment.
? Yet, despite this reduction in uncertainty, risk-free rates have not materially cheapened. We are not saying that the world’s major central banks will start raising interest rates in the near term – we do not believe that to be likely – but we do believe the significant risk premium evident in risk-free rates is no longer justified by the fundamentals. In our view this is a significant opportunity and, as a consequence, we will look to reduce duration in our portfolios.
? In emerging markets, which have continued to tighten, we are increasingly focussing on idiosyncratic views and opportunities. Two of our favourite positions at the moment are South African local debt and Indian local banks.
For more views please listen to the January global bond audiocast