The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.
Is the Fed about to make a policy error by raising rates too soon? The whole of this year financial markets are obsessed with the question whether the Fed will start normalizing short-term rates. Fed policy makers have fueled the discussion themselves by speaking out intentions to do so.
It has been seven years ago since the Federal Funds Target Rate was brought down to 0% - 0.25%. This was followed by several quantitative easing programs.True, seven years after the start of the Great Recession the US economy is in much better shape. However, downside risks are looming. Global demand is weakening due to the China slowdown. The US manufacturing sector is suffering from a strong US dollar in combination with a drop in global trade.
Deflationary forces are gathering pace again. While there still is hardly any evidence of any significant domestic wage pressure, global developments are even pushing down inflation (expectations) in the US and elsewhere. The Fed’s five year breakeven rate reached a decade low early October. The spectacular decline in commodity prices in recent years is eye catching. Global excess capacity looks ample.
In the past we have had many examples of central banks raising rates too soon. It is what happened several times in Japan over the past quarter century. In 2000 the Bank of Japan misjudged a small pick-up in inflation as a sign deflationary pressures were overcome. A year later the central bank was forced to cut rates back to zero. History repeated itself in 2008 when the BoJ was forced to bring back official rates close to zero again having raised them in the two years before.
Closer to home and of more recent date is the European Central Bank hiking rates in 2011 on fears that higher energy prices would have a lasting impact on long-term inflation expectations. Within six months Mr Trichet had to cut rates again as the euro area economy entered another recession. The Swedish Riksbank’s decision to start normalizing rates in 2010, has also become a classic example of a policy error. Paul Krugman described the policy as ‘sadomonetarist’. After bringing back official target rates back to 2%, deflationary threats drove the central bank to change course drastically within the year. Official target rates were lowered to zero, later to be followed by quantitative easing.
So while its sounds reasonable to start normalizing, Fed officials face a very delicate decision in the light of the uncertain global economic backdrop. Our best guess is that they stay on hold for the remainder of the year thereby increasing pressure on the BoJ and the ECB to step up their respective stimulative programs. Does not sound bond-unfriendly to us.
In recent months we increased the overall duration of our Rorento global total return bond fund to roughly six years. Weaker economic data have lowered the likelihood of a Fed rate hike later this year. In a low growth, low inflation world US Treasuries are our favorite pick. The yield spread versus European bonds is wide in a historical context. It is the classic safe haven asset in case financial markets would come under further pressure.
Spanish elections have resulted in underperformance of Spanish government bonds versus their Italian counterparts. We believe this will revert. Growth dynamics are superior: 3% growth versus sub 1% growth for Italy. Debt to GDP is 30% lower for Spain. The rating outlook compares favorably. S&P raised the outlook for Spain to BBB+. The Spanish debt agency has frontloaded, meaning less issuance pressure in the fourth quarter than in Italy.
The credit environment turned more hostile over the third quarter. Year-to-date excess returns moved into the red for all credit subcategories. Even our favorite segment, subordinate financials, came under pressure. In our portfolios we reduced our overall exposure to credits whilst maintaining a clear preference for subordinate financials. Financials will regain the ‘safe haven’ status that it used to have within the credit spectrum before the banking crisis and the Great Recession that followed. Once comfortable with a particular issuer, there is value in going down the capital curve.