Euro bonds are back in focus

The European Central Bank recently delivered a 75 bps rate hike but took a dovish tone on future decisions considering the deteriorating economic outlook. Amundi Asset Management says that this confirms government bonds and high-quality credit in Euro bonds are now more appealing to investors, but it still has a slightly negative to neutral stance on duration and credit.

“We continue to think that the bulk of the ECB’s balance-sheet reduction will be achieved by the repayment of TLTRO (targeted longer-term refinancing operations),” writes Ainouz Valentine, Head of Global Fixed Income Strategy at Amundi.

The investment management firm sees the terminal rate at 2.5%, as it expects policy rates to rise by another 50 bps in December and continue to increase at a slower rate thereon.

Based on the ECB comments in the previous policy decision meetings, Amundi says that Euro bonds may be closer to the neutral rate. “With a more dovish ECB, investors may come back on Euro Fixed Income, locking in some yield,” says Valentine.

Overall, Amundi says it remains neutral to slightly cautious on peripheral bonds. The investment management firm has a neutral stance on credit, but it focused on high-quality credit amid the deteriorating economic outlook. Additionally, Amundi does not see the ECB meeting impacting the rally of the USD in the context of the Euro.

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