John Taylor

Europe’s bond markets are starting to focus on the potential impact of ECB sovereign-bond purchases. While we expect QE to prompt a further narrowing of peripheral European sovereign-bond spreads, it’s important to stay focused on country fundamentals when selecting exposure.

Policy backdrops and growth trajectories around the world are showing increasing signs of divergence. Yet many bond investors continue to congregate in a few selected pockets of the fixed income universe. In our view, it’s a perfect time to reconsider diversification tactics.

Investment-grade bonds issued by nonfinancial firms in Europe’s peripheral countries have had a great run but now look expensive. In our view, government bonds from the likes of Spain and Italy offer better value for investors who want peripheral exposure.