'We prefer investment grade bonds in euro'
"In terms of geographical areas, from a fundamental point of view, Spain is one of our favourite countries"
Key points
Paul Saint-Pasteur, manager of the Global Fixed Income Team at Payden & Rygel, outlines the global bond market, showing a clear preference for corporate bonds over government bonds. Positive view on Spain and investment grade bonds in euro. Neutrality on Italy.
In the current market scenario, which eurozone countries' debt could be interesting to invest in?
From a fundamental point of view, Spain is one of our favourite countries. The economy is showing resilience thanks to an improving labour market, good domestic demand and solid exports. At the fiscal level, the country is making progress, in contrast to the deterioration of larger economies such as France. This could favour an upgrade of their rating. However, these improvements are already partly reflected in Spanish government bond yields.
What is your position on Italian debt? Could the new BTp issue be interesting?
We are currently neutral on Italian debt. BTp bonds appear expensive in terms of valuation, but fundamentals are improving. We prefer exposure to Italy via corporate bonds. At the macro level, expected growth remains modest, but the deficit could narrow, and a stable political environment could favour an improvement in the rating. A widening of BTp spreads would be an opportunity to increase exposure.
Between corporate and government, which do you prefer?
Against this backdrop, we prefer corporate debt over government bonds. We recognise that corporate bond valuations are slightly expensive, but we believe that carry can be a good way to boost yields in the coming months. With default risks still limited and fundamentals relatively strong, we maintain an overweight in corporate bonds over government bonds, with a strong emphasis on careful stock selection.
In which sectors is there more potential today?
Currently, the dispersion in corporate credit is low and, with most credit premiums at historical highs, the relative value proposition between sectors is minimal. We have noted a robust banking sector and appreciate the diversified exposure of bank balance sheets. Otherwise, we focus more on underwriting credit securities from a bottom-up perspective, limiting the downside, rather than identifying value in specific credit sectors over others.
