May 12, 2021

Notice for investors in 2019: when fixed income is anything but fixed | Economy

Notice for investors in 2019: when fixed income is anything but fixed | Economy

There is a famous phrase in the world of investment that asks if it is interesting to take bills in front of a steamroller on the move, what you want to think about if it's worth the risk of getting those tickets before the slow possibility of being caught by the machine. Well, this idea summarizes how they see the fixed income markets for 2019 the experts consulted.

Public debt and corporate bonds have suffered a via crucis throughout this year, as evidenced by the poor results of the funds that hold positions in these assets. 16% of the debt issued in the euro zone offers negative rates to investors, and in the bonds that do offer some return, this is at historical lows. Highlights the 10-year German bond that, in the middle of December, touches minimum rates of 0.23%. In Spain it is around 1.40% and, except Italy, with 2.9%, investors can not even cover the rise in life (inflation).

These low rates are the magic of the president of the European Central Bank (ECB), Mario Draghi, after almost four years of commitment to buy public debt and fixed income issues of companies, in addition to injections to banks. A market doped by the so-called quantitive easing (QE) that in January comes to an end. With these acquisitions, the ECB's balance sheet has reached 4.66 trillion euros, which represents 41.6% of the Eurozone's GDP.

Some measures that allowed to safeguard the euro and have a period of economic growth, but had as a counterpoint those very low or negative returns of public and private bonds that, logically, have affected investors. To round out, the excess liquidity of the euro area is around 1.9 trillion euros. And, in addition, the BCE penalizes with a yield of -0,4% to the deposits of the banks, that reach the 657,000 million Euros.

There is no fear of a rate-raising race in Europe such as the one undertaken by the US Federal Reserve (Fed), but it is possible that the ECB, in addition to ending its debt purchase program, makes its first movement on the price of money at the end of 2019. It is not possible to expect sudden movements, but at the current levels, any fright – as the one lived by the debt of Italy – will suppose losses for the bonds.

César Ozaeta, director of fund analysis at Abante Asesores, believes that it is difficult to invest in public debt or fixed income from companies. "With European debt it will be difficult to earn money. The risk is high and the profitability is low, so it is easy to enter losses that can be high ". Of course, although it does not expect increases of important rates that depreciate the bonds, "the Spanish 10-year bond is already at 1.4%, if you take away inflation, it means that you earn zero. As soon as the guys rebound, you lose. Therefore between being in debt or liquidity, I would opt for liquidity, "he says.

Natalia Aguirre, director of analysis of Renta 4, was negative in the presentation of its strategy of 2019 on fixed income and debt for the increase in profitability that will occur. "That the yield of the 10-year bond goes from 1.5% to 2.5% implies a fall in the bond price of 9% [el precio del bono se mueve de forma inversa a la rentabilidad]", He said. Thus, it would not invest anything in European public debt.

For his part, Roberto Scholtes Ruiz, director of strategy of UBS in Spain, indicates that it is inadvisable to invest in public debt in the coming months, when the yield of the German 10-year bond will go from 0.25% today to 0.80% , according to the ECB prepare the rate hikes, relax the Italy-EU tension and ease the fears of a global recession. "We expect relative stability in risk premia (Italy around 250 basis points and Spain 120), with which net returns will be negative in most countries. The risks are predominantly political (Italy, Brexit, European elections) ". Scholtes does not expect frights for the end of the ECB purchases. "It has been a preannounced decision and the reduction in purchases has been very gradual. It has translated into upward pressure on credit spreads and sovereign risk premiums, which seems already very discounted. It will not cause frights, although it is true that it reduces liquidity in the secondary market, and makes the quotes more volatile after the end of purchases. " To acquire European debt, prefer Italy against Spain or Portugal and supranational issuers.

Corporate bonds

The alternative to public debt is in corporate bonds, either from companies with a good solvency rating, or in so-called junk or high-yield bonds (companies with lower solvency that offer more profitability due to their emissions because they have more risk of default) ; in the subordinated debt of the banks or in the assets of these characteristics in the emerging economies. Ozaeta points out that both in companies with an investment grade rating and those with a worse credit quality (high yield) that offer returns of 4% or 5%, it is not yet time to enter because that yield can still rise more. Of course, this expert is committed to financial subordinated debt (issued by banks) that offers interest of 6% or 7%, levels according to the risk that is assumed. The bonds of the emerging countries have raised their profits, but also believe that they can be more generous in the immediate future and prefer to wait. The 5% Mexican bonds denominated in euros seem interesting.

A Renta 4 likes short-term US debt, but the investor will have to assess the risk of the exchange rate. They would also buy high yield bonds being very selective. In emerging countries they like short terms in non-local currency. Scholtes prefers corporate debt, especially the one with the worst credit quality. In Europe, in high yield bonds and sovereign debt of emerging countries denominated in dollars.


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