Article / 27 August 2014 at 11:58 GMT

Weekly Bond Update: Hoping to dodge a setback in Europe

Head of Fixed Income / Saxo Bank
Denmark
By Simon Fasdal

The present market lacks historic correlation between core bonds and equities. This is mainly due to Central Bank stimulation both realised and expected, and the lack of inflation. In a scenario of some growth and no inflation, equities and riskier assets, like higher yielding bonds truly could be star performers. The fly in the ointment? If the quite fragile European economy sees a setback, that will hurt equities. 

In such a scenario, and with the assumption that we do not see new credit events occur for European countries, there is a good chance that present yield levels will continue at record lows, and that lagging segments and regions of the bondmarket will continue to contract, in order to find a new justified level, compared to  benchmark core yields at zero altitude.

In this context we take a look at Portugal in this weekly bond update.

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A tranquil Paris cafe scene belies the fear currently stalking markets that a nasty
shock to Europe's fragile recovery could hurt equities. Photo: Thinkstock

-- Edited by Martin O'Rourke

Simon Fasdal is head of fixed income trading at Saxo Bank
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