From next month the ECB will finally launch Quantitative easing (quantitative easing) launched on 22 January. While stock markets are celebrating, on the bond front the surge in liquidity promises to keep bond yields low. And it puts the former Bot people in difficulty. How do you make money in times of low interest rates with bonds? What effect will the Fed's policies have? And the crisis in Greece? “The launch of Qe certainly represents an anomalous situation because it is a strategy that has never been implemented and could bring underestimated and unpredictable results. If the measures have the same effects as in the US, yields will certainly hardly rise, they will probably fall, albeit marginally. Also on the long part, at least until the end of the year”, explains AAngelo Drusiani, bond market advisor Albertini Syz.
How will the Fed's policy affect which, albeit cautiously, is preparing for a rate hike after June?
The probability of a contagion from the Fed's rate hike, in June or September depending on analysts' forecasts, is in fact the aspect that could change the trend. The decoupling between low rates in Europe and rising rates overseas is unlikely to last for long, it can go on for 6-8 months, but sooner or later we move towards the alignment of yields which tend to be similar for the flows of investors who they move. And so Europe too could see rates rise towards the end of the year, especially if QE fails. At the same time, if it is successful with banks using the money to finance businesses then yields could start to rise more gradually. In any case, even in the US the expectation is a gradual increase in rates with central banks continuing to play a central role. Let's not forget that at the helm of the ECB there is a man who comes from the market (Mario Draghi has a past in investment banking, ed), who therefore knows what the market expects.
Should we fear a risk of contagion from the Greek situation?
Greece's exit from the euro could be seen as the first step in a disintegration of the EU and for this reason I think an agreement will be found. However, I don't think there is a contagion effect because the amount of debt is limited and because the bond market has shown that it continues to rise even in recent days, expecting an agreement.
The Btp-bund spread has already dropped a lot, how sustainable is further tightening?
Over the next 8-10 months, euro area yields could remain at these levels, or something less. In particular, the differentials could decrease, one can think of the Italy-Spain spread returning below 100. And there could be a moderate recovery in the prices of Italian securities. There is room for a reduction in the Btp-bund spread: let us remember that in past years there was no differential with Germany. However, the further reduction of the spread now depends on the reforms of the Government.
At an operational level, therefore, how can we move to earn something?
I would avoid buying short-term stocks because they yield nothing. We think that by now a three-year Btp yields 0,49% from which the stamp duty and taxes must then be removed. Better to focus on the 1,56-year bond which yields 30% gross. Let us remember, for example, that on the 8-year yield, if yields drop by 10 cents, the price rises by two percentage points. If you buy them now you can expect that in 2,5-XNUMX months the quotations can go up, which means that I can add some capital gains to the coupon and get a gross yield of around XNUMX%. A small profit. But you have to enter now.
However, this is a rather difficult scenario to manage for an investor who is not accustomed to trading.
Former Bot people are certainly in trouble. It's a hit-and-run investor scenario. Of investors who don't hold stock very long. On the other hand there isn't much more to be gained elsewhere. The banks don't pay and the deposit accounts have now disappeared. The alternatives are not many. Either you buy 20-year bonds to hypothesize a capital gain at the end of the year, or you have to move to balanced investment funds, with at least XNUMX% in shares to get that extra return that offsets the costs.
What do you think of Btp Italia?
The Btp Italia could represent an alternative even if it is penalized by an inflation situation destined to rise marginally. The advantage compared to a normal euro-area inflation-linked security is that it does not pay inflation at maturity but every six months and this technically allows immediate liquidity. Furthermore, oil has now fallen to very low levels and upward flare-ups cannot be ruled out.
Are Treasuries an Alternative to a Strengthening Dollar?
It is dangerous to invest in US Treasuries because a decrease in value is expected in conjunction with the Fed rate hike. To what extent the dollar is able to cancel this loss we do not know. Considering the history of US currency policy, we can expect the dollar to appreciate to some extent. It will take a long time for parity with the euro to return, provided that it returns because the US goal is to increase the value of the currency of others to have advantages on the trade balance.
To have a few more points of return, is it better to move to corporate debt?
It is now necessary to invest 100 thousand euros at a time on corporates, giving indications becomes difficult. Issues for retail are almost gone, issuers want to avoid excessive costs and bureaucracy and possible legal problems such as class action, for example. Therefore they establish thresholds above 100 thousand euros. You have to go through the funds.
In this regard, what do you think of Generali's decision to ask S&P to withdraw its rating?
Generali's decision was right and now I think we are moving more and more in a direction of this type, also because ratings are no longer listened to much.
High yield bonds and emerging country debt remain. For example, Ethiopia's 6,62-year bond yields 4,65%, South Africa's XNUMX%
High yield bonds are certainly more interesting when they are in local currency but here you take home the exchange rate risk which is always difficult to manage. For this reason it is better to look at a fund in this case as well. For emerging bonds, the greatest risk is the liquidity of the securities that are issued for insignificant quantities. Even in this case, it is better to turn to fund segments that deal with them. It is also necessary to have a strong propensity for risk in the DNA, because very often this type of instrument shows strong volatility. In any case, issues of this type represent financial products suitable for expert investors or investors with large capital or with a very high risk appetite.
