Probably too early to buy Eurozone bonds - Natixis

Patrick Artus, Research Analyst at Natixis, explains that given the recent widening of yield spreads between France, Italy, and Spain on the one hand and Germany on the other hand, some investors are wondering whether it is now becoming attractive to invest in French, Italian or Spanish government bonds: is it possible that we have reached an interesting entry point for these bonds? 

Key Quotes

“We believe caution is called for: 

• The general trend in long-term interest rates is still upwards (rising inflation, monetary policies);
• There is still political risk in France (due to the uncertainty about the result of the presidential election in April-May 2017) and in Italy (due to the uncertainty about the date - in February 2018 at the latest - and the result of the parliamentary elections), which the markets are not completely pricing in yet.
• The relative levels of long-term interest rates between France, Italy, and Spain are not correct yet.”

“Conclusion: No entry point yet

We do not believe the current levels of long-term interest rates in France, Spain and Italy are entry points for investors yet, since:

- The across-the board rise in long-term interest rates is likely to continue;

- Political risk is still high in France and Italy;

- Financial markets are still not correctly pricing in the superiority of Spain’s economic situation.”