Vanguard ’Cautiously Opportunistic’ on Gilt Amid Brexit Turmoil
Source: BFW (Bloomberg First Word)
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Nick Eisinger (Vanguard Group Inc/The)
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UUID: 7947283
(Bloomberg) -- In a post-Brexit environment where “the only certainty is uncertainty,” Vanguard recommends being cautious on peripheral bonds, generally positive on Bunds and marginally constructive on 10Y Gilts, strategist Nick Eisinger says in phone interview.
Alert: HALISTER1- Favors neutral to slightly overweight positions in 10Y Gilts as they are likely to stay supported given BOE is committed to ensure stability
- Market may start to price a potential rate cut from BOE or further QE; doesn’t see this happening yet
- BOE stance generally supportive for Gilts and it may offset any selling pressure from foreign investors
- Doesn’t expect anything meaningful to materialize in U.K./EU negotiations before October as the U.K. needs a functioning govt to trigger article 50 and this will probably take some time
- Outlook for longer Gilts curve less obvious; wouldn’t recommend being overweight there at the moment as the political risk is much higher
- Expects Bunds to remain very well supported for the time being on technical factors
- Over the next months, from July until September, investors will probably give the European project the benefit of doubt
- Expects peripheral bonds to trade in line with technicals over summer period
- Sees only a marginal peripheral spread widening; any widening may offer buying opportunities given ECB QE backstop
- The next risk event to watch is the Constitutional referendum in Italy in October as it may trigger renewed political uncertainty over the European project
- Says Italy may postpone any plan to issue a 50Y bond in this uncertain environment
- Spanish election outcome probably less negative than expected; it prevented a bigger widening in peripheral spreads
- Central banks action in focus; investors will probably speculate about the need of a new round of ECB easing; still, Draghi is unlikely to give any hints on this for a little while, maybe not till after the summer
- NOTE: Fidelity says Gilt yields to rise as Brexit woes may spur borrowing
Source: BFW (Bloomberg First Word)
People
Nick Eisinger (Vanguard Group Inc/The)
To de-activate this alert, click here
UUID: 7947283