'Opportunities on European and emerging government bonds'

There is value in European government bonds and some emerging markets while the US treasury is losing its central role. This is explained by Daniele Bivona, manager of AcomeA Sgr.

The cycle of hikes is behind us, but the market is still trying to decipher the transition. In Europe, the ECB has room for an orderly decline in rates towards 1.50%-1.75% by mid-2026, aided by falling inflation and a moderately weak economy. But the real anomaly comes from the US: the tariffs announcement triggered violent repricing not only on equities, but also on government bonds. The movement also extended to Treasuries, which in theory should have benefited from the risk-off environment. Today we find ourselves in a seemingly contradictory situation: nominal yields are rising, but break-even rates remain stable; real rates, instead of falling in the presence of recessionary risks, are moving upwards and reaching historically high levels, above 2.7% at 30 years. This is a clear sign that the market is beginning to doubt the safe haven function of Treasuries.

The Eurozone is experiencing a moment of transition and seems to us to be the most vulnerable area. Inflation and growth are declining and the fiscal framework is recomposing itself, especially in the core countries, particularly Germany. It is precisely here that the slope of the curve between 2 and 30 years has turned positive again: over 120 basis points, at the highest since 2019. Obviously, this rise in yields has had a very severe impact on prices. Today, however, these bonds are trading at very low levels and with yields that are finally attractive, both in relation to short-term rates and to current inflation levels. We therefore see European duration, especially the ultra-long and core, as a major investment opportunity at this stage. In contrast, we see the periphery as still vulnerable from a fundamentals perspective, especially if we also look at the current unattractive valuations.

The crux is not so much where yields will settle, but what they are already pricing in: real ultra-long rates remain above 2.7 %, an anomaly considering that growth is slowing down and inflation is falling, a sign that the market is no longer questioning inflation, but the fiscal and geopolitical sustainability of the United States. It is a symptom of a balance that is being upset: Washington continues to place record debt while, on the industrial side, it stiffens relations with Beijing and the EU. After having guaranteed monetary stability and global security for decades, the risk is a structural shift in the geopolitical and financial balance where a disguised default could not be entirely ruled out. In this context, we estimate a fair value on the ten-year between 4 and 5%, with an upward bias until confidence in the dollar is rebuilt.