The bright side of bulging peripheral bond-bund spreads, courtesy of the strategists at Nomura (emphasis ours):
…as central bank policy provides more substantial support for the economy – especially via extensions of QE and liquidity measures – we see increasing carry opportunities in higher-yielding assets, e.g. investment grade credit and lower credit government bond and swap curves (EM and peripheral Europe)…
Peripheral Europe offers particular value at present as the latest bout of risk aversion has pushed their spread to Bunds close to the pre-ECB/IMF/EU-support-package wides. Conversely EM rates are lower than they were a month ago. Flows into EM have been substantial as the search for yield has led to a rush of cash into emerging markets and this has to a large degree immunised EM rates from the gyrations of risk sentiment in the past six months. EM rates have steadily declined in response to these flows and are now 130bp lower than at the start of the year (Figure 
[see right, click to enlarge]. Our rates strategy team currently recommends taking advantage of this value in peripherals by buying Irish bonds…
Quick, before the European Central Bank hoovers them all up…
Related links:
Mmm, Irish yield stew – FT Alphaville
The Big Pfffft and the Euro-Peripherals – FT Alphaville
This entry was posted by Joseph Cotterill on Tuesday, September 7th, 2010 at 14:38 and is filed under Capital markets. Tagged with carry trade, ecb, eurozone, government bonds, ireland, Sovereign debt, Yield.
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