The chief investment officer of fixed income at Axa Investment Managers said he could see the merits of money printing in Europe but cautioned “banks are still not in a position to lend and there is no guarantee that announcing QE now would help push inflation up in the near term”.
Mr Iggo said he doubted total returns would be as strong as they were in the first quarter of this year but admitted that QE “would be taken well by investors as it might bring yields and spreads even lower and the exchange rate down”.
His comments came as the ECB kept interest rates unchanged in early April amid growing fears of eurozone deflation, prompting renewed discussion of quantitative easing.
ECB president Mr Draghi said members of the bank’s governing council were unanimous in their commitment “to use unconventional measures should the situation warrant it” to cope with “risks of a too prolonged period of low inflation”.
But Mr Iggo said: “Mario Draghi may want to keep his powder dry for a time when there might be a greater return on pulling the trigger on QE.”
Meanwhile Scott Thiel, head of European and global bonds at BlackRock, said he was positive about European periphery countries.
He said Portugal and Slovenia were now among his “highest conviction views” and despite a significant spread compression already against higher-rated European economies, he expected a further decline in their respective spreads over Bund yields.
Key points
• ECB kept headline rates unchanged in April.
• Clamour for eurozone quantitative easing is growing.
• Fears of deflation are up.
• Bond returns are at risk this year.
• Selected investment opportunities exist in emerging market and European peripheral bonds.
Source: ECB, Axa IM, BlackRock
Adviser view
Mike Prendergast, IFA at Cheshire-based Zen Financial Services, said: “Whatever the ECB does, and despite better numbers from some Eurozone countries, the bottom line is our clients remain nervous. They want safe havens. But some are putting their toes back into the emerging markets waters - cautiously though.”