Time to buy peripheral euro zone bonds, says AXA IM

Peripheral euro zone bonds are shaping up to be one of 2013’s most promising bets, according to AXA Investment Managers.

Franz Wenzel, head of strategy at AXA Investment Management, told the Reuters Global Investment Outlook 2013 Summit held in London that peripheral sovereign bonds, particularly of Italy and Spain, should no longer be overlooked because the European Central Bank is committed to supporting struggling euro zone members.

Wenzel said: “Government bonds famously called ‘safe havens’ have given their utmost in terms of returns, and if our baseline scenario in economic and crisis terms is right, we are heading towards the end of the tunnel rather than into the tunnel.”

He stated Italian and Spanish government bonds were his preferred picks, despite the uncertainty around Italian elections in March and the high probability of a Spanish bailout. He said: “We can even digest a 6% yield level for Italian bonds for three months, it will still deliver a decent return.”

On Spain, his base case scenario remains that the government will ask for help eventually. “That would be government credit positive,” he said.

Ireland and Portugal are reaping the benefits of a reform programme started three years ago, Wenzel said. But he was not positive on Greece, where questions on debt writedowns, the outlook for growth and the stomach for austerity remain.

The challenges of budgetary control and fiscal austerity are fully priced into markets such as Spain and Italy, Wenzel said, but the scale of the reforms facing France to reinvigorate its economy had not yet hit home in some investment circles.

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