Fondoposte, the Italian pension fund for postal workers, is favouring Italian government bonds as asset managers appointed to oversee €1.4bn in assets move to assemble a new fixed income portfolio.
“We prefer Italian government bonds instead of French or German Bunds because of higher yields,” said Roberto Citarella, senior institutional sales at Amundi, the pension fund’s fixed income asset manager.
Amundi will overweight US Treasuries and UK Gilts, taking into account portfolio duration and high yields in those markets, while expecting interest rates to decline later this year.
The asset manager is pursuing an active government bond strategy which, in an environment of volatility and political uncertainty, “is a further alpha, and a further added value” move, Citarella added.
Amundi also manages a short-term euro aggregate active bond mandate for Fondoposte’s new ‘Monetario’ sub-fund.
With yields rising and volatility low at the short end of the curve, short-term bonds are one of the few asset classes de-correlated from the others, in an environment where de-correlation is difficult to find, Citarella said.
Fondoposte said in a statement that it is implementing a broadly diversified investment policy, and has entrusted Amundi to invest a share of assets in government bonds, given its ability to successfully navigate periods of political uncertainty and market volatility, such as the one currently affecting the European government bond segment.
Schroders, which has been recently awarded a mandate to run the ‘Bilanciato Obbligazionario’ option, is building a portfolio investing 70% in government, inflation-linked and high-yield bonds, and 30% in global equities, according to Fabrizio Bianchi, head of Italy at Schroders.
French bonds
Fondoposte’s portfolio construction comes as the political crisis in France deepens, following the resignation of prime minister Sébastien Lecornu after just 26 days in office.
Generali Asset Management expects the spread between French government bonds (OATs) and German Bunds to continue widening until possible new elections.
“We also expect both peripheral government bonds, particularly Italy, and French corporate bond issuance to remain relatively immune from contagion from French government bonds,” said Gianluca Bergamaschi, head of fixed income mandates at Generali AM.
The spread between OATs and Bunds has widened to nearly 90 basis points, close to its highest level since the euro zone sovereign debt crisis.
“In a sign of how times have changed, 10-year French government bonds now yield more than 10-year Italian BTPs. Given the relative improvements in the Italian fiscal story and the ongoing fiscal mess in France, it is difficult to argue that markets are wrong in pricing them this way,” said Colin Finlayson, investment manager at Aegon AM.
Moody’s and S&P may downgrade France later this month and in November, respectively, following Fitch’s downgrade in September.
“This could lead to some forced selling by some institutional investors, who are unable to hold bonds below a certain ratings threshold,” Finlayson added.
The French fiscal situation remains a manageable but persistent risk, according to Amundi’s chief investment officer Vincent Mortier and head of the Amundi Investment Institute Monica Defend.
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