- Debt.S&P raises Spain's note to 'A' with a stable outlook despite political uncertainty
Iain Stealey says that every fixed income manager now dreams of two ideas: "growth" and "inflation." Such is the situation in the markets now. However, Stealey (40), director of investments at Fixed Income, Foreign Exchange and Commodities at JP Morgan , continues to see opportunities and believes that one of them is in Spanish debt. The fundamentals of the country, according to his analysis, are solid and he believes they will be a bulwark in the midst of political instability that has led the country to new general elections on November 10.How can it affect the outcome of the 10-N elections in Spain? Our base scenario is that the elections will take place, I don't know what results will come from them, but we will continue to see a continuity in the Spanish economy, that is, a good growth in relation to the rest of the Eurozone and a trajectory of improvement. We do not believe that there will be changes in the trajectory of the Spanish economy. Is the Spanish debt attractive to investors now? Yes. We have Spanish bonds and I personally prefer their profitability to that of the German bond and I believe that if you look at the 10-year or 30-year bond, the spreads are still relatively attractive. You can argue that they are in the narrowest part of their range in recent years, but in a world with negative interest rates in which it is difficult to find income, I think there are still opportunities in Spain. Also, if you look at the trajectory of the rating agencies it is still favorable. A few years ago, investors placed Spain's debt with that of countries like Italy or Greece in the same group. Do you think it's still at the same level? No. You just have to look at the price and what the rating agencies are doing. Everyone agrees that Spain is having a good track record at the moment. The prices in the market indicate that there is a progressive improvement of the positive feeling towards Spain and Portugal, although there has also been an improvement towards Italy and Greece. I think that both, Spain and Portugal, see Italy and Greece in a definitely different way. The ECB has played a fundamental role in that trajectory. Now he is at the door of launching new expansive measures and with Mario Draghi ending his term. What role will the European Central Bank play in the coming months? Until now the ECB has done a lot. It is obvious that there is some dissent between the members of the ECB and Mario Draghi, who already indicated that it is time for governments to take charge of driving growth again and will try to start doing something from a fiscal point of view. That said, if we continue to see a deterioration in the growth of the Eurozone, we believe it will be the opportunity for the ECB to do something else. However, the ECB would like to see that there is some gesture on the part of governments. Do you think it is complicated now that European countries implement fiscal measures? Yes. It seems that the situation would have to get worse before that happens. There is much interest in what happens in Germany. At this moment I agree, it is difficult, but the ECB is reaching the end of what it can do and this obviously raises concerns again within the governing council about whether they should carry out future actions or if they should wait to detect a significant deterioration to act. One of the doubts in the air is whether it will lower interest rates again at a time when many are already in negative territory. What do you think of negative interest rates? One can always ask the question of what would have happened if we had not reached this point, if we had not. Would it have been worse? The only evidence is that it does not appear that negative interest rates have been particularly useful because the Eurozone is stagnating. We have negative interest rates since 2014. In principle they were for the short term, something more tactical than strategic, although it has become precisely a strategic movement. We have been five years and when you look at the market curve, it is discounting another seven years, 12 in total. It is a long period, a decade, a generation. They do not seem to have been really useful and have not worked, but what would have happened if they had not been implemented? It is difficult to predict. - The rate curve in the US was reversed in August. It has always been said that when this happened, it was a symptom of an upcoming recession. Do you think we are at that point now? Historically the curve has been the best leading indicator, but is it different this time? I think there are some things now that were not seen in the previous cases, for example, we had never had QE or negative returns on bonds around the world. Now, I think that the yield curve is now not as good an indicator as it has been before, but neither should we ignore it. The other issue is that it is not something that occurs immediately. On previous occasions, a couple of years have passed since the investment has been made until the crisis has arrived. I think we are now at the end of the economic cycle and we must be aware of this. Central banks have played a preventive role at this time, but will they be able to stop the recession? We do not know, time will tell. Historically, they have not been able to do so because in that case, we would not have had recessions. The question on this occasion is whether they will be able to face it and if we are only facing a slowdown in the economy or if it will end up being, in effect, a recession. During this time of which he speaks, the central banks have flooded the liquidity markets and the indebtedness of companies and countries has grown considerably. Do you think there is a debt bubble? (Long silence) It depends on how you look at it. In homes, no. Household debt levels have fallen, but have risen at the corporate level and in governments. The corporate sector is interesting and has focused a lot of attention in the last year. Attention must be paid to this sector, but it must also be borne in mind that while debt levels have risen, their financing costs have also decreased. Do not lose sight of it, but I don't think it's bad enough to worry about a bubble.
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