Main market events
were under a bit of pressure in the run up to Thursday’s ECB meeting,
as several hawkish members pushed back against “overdone” market
expectations, but as always, Mario Draghi lived up to his reputation and
presented the market a comprehensive stimulus package as farewell gift
to his 8-year term as ECB President. Especially Italian government bonds
rallied significantly after this announcement. Italian bonds have
returned 14.2% year-to-date, Spanish bonds 10.4%, Portuguese bonds 10.0%
and Irish bonds 7.8%.
Thursday Mario Draghi laid out a comprehensive stimulus package which
consists of: a cut in the deposit facility rate by 10bp to -0.5%, a
restart of net asset purchases at a monthly pace of EUR20bn from 1
November, slightly more generous terms in the seven upcoming quarterly
TLTROs and the introduction of a two-tier system for reserve
remuneration. Especially the open-ended nature of the QE-II program was a
dovish surprise to markets. Draghi strongly emphasized the need for
fiscal stimulus going forward, a message that will likely be echoed by
Christine Lagarde when she takes over from Draghi as per November.
minister Conte won the final confidence vote in the Senate on Tuesday.
Most M5S and PD senators supported the new government. The new
government intends to change the electoral law to make it a pure
proportional representation system, which would reduce the chances of a
right-wing, Lega-led government to emerge after the next election.
talks between the socialist PSOE and the left-wing Podemos to form a
government broke down this week. Parties have until September 23 to
appoint a Prime-minister, otherwise congress will be dissolved and new
elections will be held, likely around November 10. The latest opinion
polls suggest PSOE may increase its number of seats in a new election,
but not by enough to avoid the necessity to find a coalition partner.
Robeco Euro Government Bonds
of the ECB meeting, we used the small setback in spreads to slightly
add to Italy exposure, expecting Draghi to deliver despite all the
hawkish comments. Next to that, we switched Portugal into Spain, as the
yield differential has declined to nearly zero, so we prefer to improve
liquidity in the fund without compromising on spread potential. The fund
currently has significant overweight positions in Italy and Spain
versus the index, and limited overweight positions in Portugal and
Ireland. 50% of the fund is invested in peripheral bonds, which is 9%
above the level of the index. Year to date the absolute return of the
fund is 9.96%*.