Europe’s largest asset manager sees the region’s bank bonds as the most attractive globally, after last month’s sector turmoil opened up a buying opportunity.
(Bloomberg) — Europe’s largest asset manager sees the region’s bank bonds as the most attractive globally, after last month’s sector turmoil opened up a buying opportunity.
Amundi Asset Management, with more than $2 trillion of assets under management as of end-2022, says the debt is appealing despite volatility stemming from the recent collapse of US regional lenders and the demise of Credit Suisse Group AG, citing solid balance sheets and attractive yields.
“We believe that Credit Suisse was a specific issue and the European banking system is very strong and their balance sheets are very sound,” Amaury d’Orsay, head of Amundi’s fixed income investment platform, said in an interview in Tokyo. “In the medium-term, banks in Europe will benefit from a higher rates environment.”
Markets have calmed since the March upheaval, although financial stability and sticky inflation remain persistent threats as central banks around the world continue on an interest rate hiking cycle. Spreads on European lenders’ senior bank bonds surged past 220 basis points, but have since eased back to about 164, which is in-line with the average so far this year, a Bloomberg index shows.
D’Orsay said he is broadly confident that investment-grade companies will be able to navigate the difficult environment, although he noted that real estate was his least preferred sector due to its exposure to elevated borrowing costs.
Here are some other points from the interview:
- When it comes to entry points to sovereign debt, d’Orsay sees a yield of around 250 basis points or above for 5- and 10-year German government bonds as an attractive level to buy, and around 4% for 5- and 10-year US Treasuries.
- Amundi is slightly short duration on Japanese government bonds because of limited upside and bigger downside risks amid lingering speculation over the Bank of Japan’s ultra-loose policy, said d’Orsay. He added that should the central bank start to normalize its policy, he would begin to invest in Japanese government bonds.
- READ: BOJ Ueda Sticks to Focus on Continuity, Existing Joint Accord
- The company is neutral on the dollar and the euro after being bullish on the greenback until 2022 as advantage from differential of growth and rates between the US and Europe fades. It is slightly overweight on the yen due to its haven appeal and potentially narrowing yield gap, d’Orsay said
- See also: European Bank Bonds Now Offer Value, T. Rowe Price’s Hanai Says
–With assistance from Ayai Tomisawa and Masaki Kondo.
(Updates levels.)
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