Important legal information

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.

I Disagree
Will central banks spoil buoyant market sentiment?

Will central banks spoil buoyant market sentiment?

28-07-2017 | Quarterly outlook

In its quarterly outlook, the Global Fixed Income Macro team sees central banks gradually normalizing their policies. As inflationary pressures are low, central banks are not likely to act aggressively and upset financial markets. Emerging market local debt looks attractive as inflation is falling in most emerging countries. This should lead to lower bond yields.

  • Kommer van Trigt
    Kommer
    van Trigt
    Portfolio manager, Head of Global Fixed Income Macro

Speed read

  • Central banks will tighten, but at a very gradual pace
  • Treasuries and Bunds likely to converge as Trump fails to deliver
  • Emerging local debt looks attractive, although there are return differences between countries

In recent weeks, synchronized hawkish rhetoric from major central banks has pushed bond yields higher. Key comments from European Central Bank President Draghi and Bank of England Governor Carney triggered speculation that a shift away from the period of extremely low or negative interest rates and quantitative easing (QE) is imminent. The Fed is openly contemplating when to start reducing its balance sheet and raised official target rates in June for the fourth time this tightening cycle. Then there’s China, where the People’s Bank of China (PBOC) is trying to find a balance, tightening monetary policy to address excessive leverage in the financial system without causing a credit crunch.

To us it makes sense for central banks to start policy normalization, with buoyant financial markets and world economic growth likely to move up in the coming years. However, lackluster price pressures and structural problems, such as low productivity growth and high income inequality, indicate that this policy normalization will be very gradual. So don’t expect central banks to step on the brakes aggressively and derail financial markets. Other tail risks, like China’s alarmingly rising leverage, are better positioned to emerge as a catalyst for a spike in financial markets volatility.

Treasury and Bund yields to converge as Trump fails to deliver

Compressed yield levels in European core bond markets look unattractive versus US bonds from a risk/reward perspective. We expect the US-German yield differential to converge. The economic upturn in the euro area gathers pace while in the US a growth impulse via tax cuts looks far off and the Federal Reserve’s projected rate hike path is challenged by a shortfall in inflation. As the differential between 10-year German and US yields still trades close to historical highs, we prefer US Treasuries to German bunds.

Emerging local debt has further to go

We stick with our positive stance on emerging (local) debt, although substantial return differentiation between countries will continue to be a feature of this asset class. In several countries there is scope for (further) monetary stimulus as inflation is falling. This should be supportive for their respective local rates. As inflation is moving lower, real yields continue to look attractive versus other bond markets, especially those in the advanced economies. The inflows into the asset class can continue, as the positioning of global fixed income investors in this segment does not look extreme yet.

The local rates market of Mexico remains our favorite. We are confident that the government and central bank will be successful in driving down inflation in the near future, just as their regional neighbours have been recently. There are two country-specific factors that have driven Mexican prices higher, i.e. the weakness in the peso up to and after Donald Trump’s election as US President in November 2016, and the final liberalization of domestic oil and gas prices at the start of 2017. Not only are the worst calendar effects of these factors now behind us, the Banco de México has also increased interest rates significantly in order to counter the risk of additional inflation pressure or higher inflation expectations. In anticipation of the central bank’s success in fighting inflation we are positioned in the belly of the Mexican swap curve.

Recently, we also initiated a long position in the Russian ruble after it had come under pressure when EU and US sanctions were extended and oil prices had dropped.

Peripheral spreads can widen as ECB bond buying is gradually phased out

We re-initiated a short position in the Italian and Spanish bond markets. In the aftermath of the French elections, peripheral spreads have tightened. The main reason for our change in positioning is that current spreads do not compensate for the move to monetary policy nomalization (i.e. the gradual phasing out of ECB bond buying).

Constructive on subordinated financials; more cautious on high yield and Asian credit

Our preferred credit category is subordinated financials. Their valuation is attractive versus other credit categories. Furthermore, an environment of rising yields and steeper yield curves is supportive for the financial sector. Asian credit and high yield corporate bonds look less attractive given their current valuations.

The figure below summarizes our views on the attractiveness of government bond markets and specific fixed income assets, based on valuation, technicals and fundamentals.

Global Macro top-down investment framework

Leave your details and download the report

This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US citizens and residents.