Latest news with #GuillermoFelices
The Star
2 days ago
- Business
- The Star
Europe's born-again bonds
FIFTEEN years ago, Guillermo Felices was helping clients navigate Europe's sovereign debt crisis. Now, he's extolling the bonds once at the centre of that storm. Italy, Spain, Ireland, Portugal and Greece, which nearly collapsed under the burden of their debt in 2011, have since transformed into top picks for firms like PGIM Fixed Income, where Felices works as a London-based investment strategist.
Irish Examiner
6 days ago
- Business
- Irish Examiner
One-time bond pariahs like Ireland now go neck and neck with Germany, France
A decade and a half ago, Guillermo Felices was helping clients navigate Europe's sovereign debt crisis. Now, he's extolling the bonds once at the centre of that storm. Italy, Spain, Ireland, Portugal and Greece, which nearly collapsed under the burden of their debt in 2011, have since transformed into top picks for firms like PGIM Fixed Income, where Felices works as a London-based investment strategist. His recommendations are emblematic of the historic shift that's taken place in the region's debt-market hierarchy. The recovery in the nations on Europe's periphery has been years in the making and as investors shy away from President Donald Trump's policy making, their bonds are increasingly being seen as healthy alternatives to the debt of Europe's biggest economies. Spanish, Greek and Portuguese bonds now all yield less than France. Italy is on course to outperform Germany and France for the fourth year in a row on a total returns basis — matching the longest winning streak on record. 'Post-crisis, the story was always that Europe is going to be difficult to solve,' Felices said, pointing to its history of sluggish growth, excessive public spending and squabbling among member states. 'This is less the case now, especially in terms of fiscal profligacy, while the US is more unorthodox.' US Treasuries have been buffeted this year, most notably in April when Trump unveiled a package of aggressive trade tariffs. Worries over the US fiscal outlook have also flared up. The appeal of the peripheral bonds, meanwhile, is down to a post-pandemic economic recovery that outstripped the gains in the region's economic powerhouses of Germany and France. Spain is a particular bright spot, and is expected to grow around 2.5% this year, more than double the pace of the wider bloc. Investors' exposure to the nations on Europe's fringes remains near the highest levels seen in the past five years, according to a monthly Bank of America survey. Another key turning point came in March, when Germany abandoned decades of fiscal austerity and vowed to plow billions of euros into defense and infrastructure. While that's seen as a vital catalyst for EU growth, the coming deluge of German bonds has made some investors cautious and damped prices for the nation's debt. 'We prefer countries with strong growth and which haven't committed to raising defense spending as much as Germany,' said Niall Scanlon, fixed income portfolio manager at Mediolanum International Funds Limited. Spain is his 'standout pick,' though he says he has also favored Italy this year. Then there's France, once considered a proxy for Germany in terms of its financial heft, but now a no-go for many bond funds. Investor sentiment soured last year after unbridled public spending left it with the largest deficit in the euro area. Attempts by the government to pass its 2026 budget in the coming months may trigger a fresh bout of volatility. As a result, the difference in borrowing costs between France and Italy has shrunk: investors demand just 12 basis points of extra yield to lend to Italy for 10 years rather than France — the smallest amount in two decades. 'We prefer Italy and Spain over France and Germany,' said Sachin Gupta, portfolio manager at bond giant Pacific Investment Management Co. The periphery's outperformance 'can continue, even after having come a long way,' he added. In a speech in June, European Central Bank official Philip Lane pointed to the relative stability of euro-area bonds this year, even as other debt markets saw significant price swings. That's likely down to factors including inflows from domestic and global investors as they reduced exposure to US assets, as well as a 'shared commitment' to fiscal responsibility across the bloc, Lane said. To be sure, peripheral bonds have already rallied so much that potential returns aren't as attractive as they once were. Greece is a case in point — less than three years ago its 10-year bonds yielded more than 5%. That's since declined to about 3.30%. 'It is undeniable that the heavy lifting has been done,' said Gareth Hill, a senior fund manager at Royal London Asset Management Ltd. And there's still some reticence among US investors to venture into European sovereign markets beyond German bonds, which retain their status as the region's haven asset. Ales Koutny, head of international rates at Vanguard, said that while US demand has picked up, bunds have taken 'the lion's share' of inflows. Still, it's hard to make a case that the periphery nations will fall back into the slow lane, unless there's a fresh economic crisis or sharp lapse in budgetary discipline, according to Royal London's Hill. Kristina Hooper, chief market strategist for Man Group Plc, argues that —with the appropriate vetting — there are plenty of opportunities to be found beyond the traditional core. 'It is the time to diversify away, at least modestly, from the US,' Hooper said from New York. Peripheral countries 'are doing well, and their bonds look far more attractive than they used to,' she said. Bloomberg
Mint
10-08-2025
- Business
- Mint
One-Time Bond Pariahs Go Neck and Neck With Germany, France
(Bloomberg) -- A decade and a half ago, Guillermo Felices was helping clients navigate Europe's sovereign debt crisis. Now, he's extolling the bonds once at the center of that storm. Italy, Spain, Ireland, Portugal and Greece, which nearly collapsed under the burden of their debt in 2011, have since transformed into top picks for firms like PGIM Fixed Income, where Felices works as a London-based investment strategist. His recommendations are emblematic of the historic shift that's taken place in the region's debt-market hierarchy. The recovery in the nations on Europe's periphery has been years in the making and as investors shy away from President Donald Trump's policy making, their bonds are increasingly being seen as healthy alternatives to the debt of Europe's biggest economies. Spanish, Greek and Portuguese bonds now all yield less than France. Italy is on course to outperform Germany and France for the fourth year in a row on a total returns basis — matching the longest winning streak on record. 'Post-crisis, the story was always that Europe is going to be difficult to solve,' Felices said, pointing to its history of sluggish growth, excessive public spending and squabbling among member states. 'This is less the case now, especially in terms of fiscal profligacy, while the US is more unorthodox.' US Treasuries have been buffeted this year, most notably in April when Trump unveiled a package of aggressive trade tariffs. Worries over the US fiscal outlook have also flared up. The appeal of the peripheral bonds, meanwhile, is down to a post-pandemic economic recovery that outstripped the gains in the region's economic powerhouses of Germany and France. Spain is a particular bright spot, and is expected to grow around 2.5% this year, more than double the pace of the wider bloc. Investors' exposure to the nations on Europe's fringes remains near the highest levels seen in the past five years, according to a monthly Bank of America survey published on Friday. Another key turning point came in March, when Germany abandoned decades of fiscal austerity and vowed to plow billions of euros into defense and infrastructure. While that's seen as a vital catalyst for EU growth, the coming deluge of German bonds has made some investors cautious and damped prices for the nation's debt. 'We prefer countries with strong growth and which haven't committed to raising defense spending as much as Germany,' said Niall Scanlon, fixed income portfolio manager at Mediolanum International Funds Limited. Spain is his 'standout pick,' though he says he has also favored Italy this year. Then there's France, once considered a proxy for Germany in terms of its financial heft, but now a no-go for many bond funds. Investor sentiment soured last year after unbridled public spending left it with the largest deficit in the euro area. Attempts by the government to pass its 2026 budget in the coming months may trigger a fresh bout of volatility. As a result, the difference in borrowing costs between France and Italy has shrunk: investors demand just 12 basis points of extra yield to lend to Italy for 10 years rather than France — the smallest amount in two decades. 'We prefer Italy and Spain over France and Germany,' said Sachin Gupta, portfolio manager at bond giant Pacific Investment Management Co. The periphery's outperformance 'can continue, even after having come a long way,' he added. In a speech in June, European Central Bank official Philip Lane pointed to the relative stability of euro-area bonds this year, even as other debt markets saw significant price swings. That's likely down to factors including inflows from domestic and global investors as they reduced exposure to US assets, as well as a 'shared commitment' to fiscal responsibility across the bloc, Lane said. To be sure, peripheral bonds have already rallied so much that potential returns aren't as attractive as they once were. Greece is a case in point — less than three years ago its 10-year bonds yielded more than 5%. That's since declined to about 3.30%. 'It is undeniable that the heavy lifting has been done,' said Gareth Hill, a senior fund manager at Royal London Asset Management Ltd. And there's still some reticence among US investors to venture into European sovereign markets beyond German bonds, which retain their status as the region's haven asset. Ales Koutny, head of international rates at Vanguard, said that while US demand has picked up, bunds have taken 'the lion's share' of inflows. Still, it's hard to make a case that the periphery nations will fall back into the slow lane, unless there's a fresh economic crisis or sharp lapse in budgetary discipline, according to Royal London's Hill. Kristina Hooper, chief market strategist for Man Group Plc, argues that —with the appropriate vetting — there are plenty of opportunities to be found beyond the traditional core. 'It is the time to diversify away, at least modestly, from the US,' Hooper said from New York. Peripheral countries 'are doing well, and their bonds look far more attractive than they used to,' she said. --With assistance from Michael Mackenzie, Anya Andrianova and Freya Jones. More stories like this are available on
Yahoo
28-02-2025
- Business
- Yahoo
Investors bet on sharpest US-Europe inflation divergence since 2022
By Harry Robertson LONDON (Reuters) - Traders who bet on the future course of inflation foresee the sharpest divergence for three years between the U.S. and euro zone, driven by different growth paths, tariff threats and cheaper European energy after a potential Ukraine peace deal. That gap is not fully reflected in U.S. and euro zone bond yields, however, as investors are eyeing other factors including recent tepid U.S. economic data and expectations that European countries might need to spend more on defence. Inflation swap markets late last week pointed to U.S. consumer price index (CPI) inflation running at about 2.8% over the next two years, with euro zone inflation swaps at around 1.9%. That would mark a small fall from a current U.S. CPI rate of 3% and a sharper one from euro zone inflation of 2.5%. Pricing for both has fallen slightly since, but the gap between the two remains at its widest since early 2022. Yields on U.S. Treasury bonds have nevertheless fallen compared to those in Europe in recent weeks as some weaker-than-expected data releases have sown doubts about growth, even as sticky inflation remains a concern. "I think it's really, really hard to trade cross-markets when you have different drivers affecting the different markets," said Guillermo Felices, principal and global investment strategist at PGIM Fixed Income. Inflation swaps are derivatives that allow parties to increase or reduce their exposure to inflation. Many in the market - from speculative traders to companies needing to hedge - expect U.S. President Donald Trump's planned trade tariffs to push up prices in the United States but hit European growth, dampening inflation pressures there. "Tariffs... are a one-off shock to the price level," said Blerina Uruci, chief U.S. economist in the fixed income division at T. Rowe Price. "What's different now is we have lived in a high-inflation environment, and businesses have discovered they have pricing power (so) what could be a one-off shock to the price level could have more room to run." Growth differentials are another factor. The U.S. economy has expanded about 12% since just before the pandemic, while the 20-country euro zone has grown 5%. Trump's other major transatlantic policy focus, negotiating with Russia an end to the war in Ukraine, has startled European capitals but caused energy prices to drop. European natural gas prices - a key driver of euro zone inflation - have fallen 30% since mid-February. "That is definitely pushing down on front-end inflation swaps," said PGIM's Felices. "So you're getting this unusual divergence between the U.S. and Europe." Differences in inflation pricing would usually be expected to lead U.S. bond yields higher compared to Europe. But the focus of investors recently has been on slowing U.S. growth even amid sticky inflation, highlighted by this week's slump in a key consumer confidence gauge. The likelihood that European governments will need to borrow more - perhaps jointly - to fund higher defence spending demanded by Trump is another new factor to consider. The gap between U.S. and German 10-year bond yields fell to its lowest since November on Tuesday at 182 basis points (bps) - down from a five-year high of 231 bps in December. Traders now expect about 55 bps of Federal Reserve rate cuts this year, after previously expecting just one 25 bp reduction. Pricing for the European Central Bank has changed less, with 85 bps of cuts anticipated. Some investors are sticking with the view that U.S. economic strength will keep borrowing costs there high. "The Fed has been very clear in saying they are still in restrictive territory, but they are happy to stay here if growth still remains," said Ales Koutny, head of international rates at Vanguard. "That limits how much bonds can rally." Lower returns have reduced the attractiveness of U.S. bonds and weighed on the dollar, helping the euro rise to $1.05 from a more than two-year low of $1.01 last month. Samuel Zief, head of global FX strategy at JPMorgan Private Bank, said he's wary of betting on a sustained rally in the common currency, however. "We think the uncertainty from trade and those headwinds are the real thing that need to be cleared before you can turn more cyclically bullish on the euro zone," he said. Felices at PGIM takes solace from the fact inflation expectations are not too far away from 2%, especially given the Fed targets the personal consumption expenditures index, which tends to be lower than CPI. "That these numbers are still pretty consistent with inflation targets is very reassuring," he said.
Reuters
27-02-2025
- Business
- Reuters
Investors bet on sharpest U.S.-Europe inflation divergence since 2022
LONDON, Feb 27 (Reuters) - Traders who bet on the future course of inflation foresee the sharpest divergence for three years between the U.S. and euro zone, driven by different growth paths, tariff threats and cheaper European energy after a potential Ukraine peace deal. That gap is not fully reflected in U.S. and euro zone bond yields, however, as investors are eyeing other factors including recent tepid U.S. economic data and expectations that European countries might need to spend more on defence. Inflation swap markets late last week pointed to U.S. consumer price index (CPI) inflation running at about 2.8% over the next two years, with euro zone inflation swaps at around 1.9%. That would mark a small fall from a current U.S. CPI rate of 3% and a sharper one from euro zone inflation of 2.5%. Pricing for both has fallen slightly since, but the gap between the two remains at its widest since early 2022. Yields on U.S. Treasury bonds have nevertheless fallen compared to those in Europe in recent weeks as some weaker-than-expected data releases have sown doubts about growth, even as sticky inflation remains a concern. "I think it's really, really hard to trade cross-markets when you have different drivers affecting the different markets," said Guillermo Felices, principal and global investment strategist at PGIM Fixed Income. STARK DIVIDE Inflation swaps are derivatives that allow parties to increase or reduce their exposure to inflation. Many in the market - from speculative traders to companies needing to hedge - expect U.S. President Donald Trump's planned trade tariffs to push up prices in the United States but hit European growth, dampening inflation pressures there. "Tariffs... are a one-off shock to the price level," said Blerina Uruci, chief U.S. economist in the fixed income division at T. Rowe Price. "What's different now is we have lived in a high-inflation environment, and businesses have discovered they have pricing power (so) what could be a one-off shock to the price level could have more room to run." Growth differentials are another factor. The U.S. economy has expanded about 12% since just before the pandemic, while the 20-country euro zone has grown 5%. Trump's other major transatlantic policy focus, negotiating with Russia an end to the war in Ukraine, has startled European capitals but caused energy prices to drop. European natural gas prices - a key driver of euro zone inflation - have fallen 30% since mid-February . "That is definitely pushing down on front-end inflation swaps," said PGIM's Felices. "So you're getting this unusual divergence between the U.S. and Europe." VOLATILE MARKETS Differences in inflation pricing would usually be expected to lead U.S. bond yields higher compared to Europe. But the focus of investors recently has been on slowing U.S. growth even amid sticky inflation, highlighted by this week's slump in a key consumer confidence gauge. The likelihood that European governments will need to borrow more - perhaps jointly - to fund higher defence spending demanded by Trump is another new factor to consider. The gap between U.S. and German 10-year bond yields fell to its lowest since November on Tuesday at 182 basis points (bps) - down from a five-year high of 231 bps in December. Traders now expect about 55 bps of Federal Reserve rate cuts this year, after previously expecting just one 25 bp reduction. Pricing for the European Central Bank has changed less, with 85 bps of cuts anticipated. Some investors are sticking with the view that U.S. economic strength will keep borrowing costs there high. "The Fed has been very clear in saying they are still in restrictive territory, but they are happy to stay here if growth still remains," said Ales Koutny, head of international rates at Vanguard. "That limits how much bonds can rally." Lower returns have reduced the attractiveness of U.S. bonds and weighed on the dollar, helping the euro rise to $1.05 from a more than two-year low of $1.01 last month. Samuel Zief, head of global FX strategy at JPMorgan Private Bank, said he's wary of betting on a sustained rally in the common currency, however. "We think the uncertainty from trade and those headwinds are the real thing that need to be cleared before you can turn more cyclically bullish on the euro zone," he said. Felices at PGIM takes solace from the fact inflation expectations are not too far away from 2%, especially given the Fed targets the personal consumption expenditures index, which tends to be lower than CPI. "That these numbers are still pretty consistent with inflation targets is very reassuring," he said.
