'Italian sovereign debt is among our favourites'
"On the T Bond long term there is still value, despite Liberation Day".
3' min read
Key points
- In the world, government and private debt has reached a record 323 trillion dollars and the trend seems unstoppable. In this scenario, how should one move between the government bonds of the various countries and over which maturities? Is the Treasury still a safe haven?
- Eurobonds on defence. If this hypothesis were to materialise, what would be the impact on the European market?
- Where do you find the best opportunities geographically and sector-wise? Do you invest in Italy?
3' min read
Focus on corporate bonds, government bonds, emerging debt and securitisations. The strategy of Gregory Peters, co-chief investment officer of Pgim Fixed Income, covers these types of issues.
In the world, government and private debt has reached a record 323 trillion dollars and the trend seems unstoppable. In this scenario, how should one move between the government bonds of the various countries and over which maturities? Is the Treasury still a safe haven
?The various market poles go in different directions, e.g. long-term yields go up and short-term yields go down. We have seen the dollar and US Treasuries trading as risk assets with an opposite correlation to EU rates. Since 'Liberation Day', the dollar and Treasuries have not been seen as characteristic securities for flight to quality assets, which is worrying. Seeing long-dated Treasuries around 5% suggests, however, that there is still value in the long run. Despite the headwinds, the US is one of the largest and deepest markets, operating 24 hours a day from Sunday night to Friday night and likely to continue to have solid geopolitical and resource security. It is a uniqueness not found in any other market. Despite the volatility on the world stage, the preponderance of the US bond market is likely to persist in the future. Although we may see a downgrade in growth, the environment could be positive for fixed income.
Is the expansion of the trade war a real risk for credit in Europe?
We live in a period of extreme change and the outlook for growth is worse than 3 months ago. The Fed has not emphasised growth (as opposed to inflation) as a target, so there are huge differences between markets, but this has not been the case in Europe. Reciprocal tariffs on US goods could drive up prices, but the ECB is showing a tendency to cut rates as the trade war escalates; it has maintained the narrative that falling rates and rising real household incomes should support European growth. Although credit spreads widened in Europe, peripherals did better on a relative basis. The European bond market seems disciplined.
Eurobond on defence. If this hypothesis were to materialise, what would be the impact on the European market?
Expectations have been somewhat lowered, but should they materialise, it will take some time before Europe is able to allocate the necessary capital, which would be significant from a bond market perspective.
Can high-yield bonds be a diversification tool in such a volatile environment?
With tariffs, stock market volatility and slowing growth creating uncertainty, bonds offer a key hedge. High initial yields present significant potential, while tight spreads combined with wide dispersion and higher rate volatility highlight the need for active management.
