The European Central Bank's decision to hold interest rates has made European bonds more attractive than gilts to one fixed income manager.
According to David Chappell, senior fund manager, fixed income, at Columbia Threadneedle Investments, he said the "expected" hold from the European Central Bank's monetary policy team was broadly welcome by investors.
The CT team remains overweight in European government bonds, and "we favour them over UK gilts", he said.
Chappell said: "As expected, the Monetary Policy press release retained the same ‘sufficiently long duration’ phrase to describe the expected rates on hold timeframe."
Although ECB president Christine Lagarde had suggested the possibility of rate adjustments commencing from June onwards in a recent interview, and she suggested that it was premature to discuss easing, the manager believes there could be a policy shift sooner rather than later.
Chappell added: "The evolving underlying inflation trend and some independent wage trackers were allowing members of the committee to gain greater confidence that current stance is having the desired effect, opening the door to a policy shift perhaps sooner than expected."
Rupert Thompson, chief economist for Kingswood, said: "All said and done, expectations for rate cuts have been scaled back somewhat, not only in the US and UK but also in the Eurozone following comments from president Lagarde.
"The market now expects rates in all three regions to start being cut around May, rather than March, and to be down 1.25 per cent or so by year-end in the US and Eurozone and 1 per cent in the UK."
simoney.kyriakou@ft.com
