Nomura’s Maeda Says Gilts Are Most Compelling Bet In Europe
Samantha LuanNomura Asset Management Co. has been snapping up UK government bonds as their yields look more attractive compared with other European countries.
Nomura Asset Management Co. has been snapping up UK government bonds as their yields look more attractive compared with other European countries."Within Europe, UK debt is the most compelling option to invest," Yuji Maeda, head of global fixed income investment at the $646 billion firm, said in an interview in Tokyo, adding that the Bank of England has been "taking its time" to cut interest rates. "Given that gilts still offer a yield over German Bunds, the UK looks easier to invest when compared with a country like France."
Despite a tumble in gilt yields this month, the 10-year maturity is yielding about 4.4%, making it appealing for investors in Japan, where domestic bonds of the same maturity are offering around 1.6%. Nomura is not the only Japanese asset manager positive on the bonds, with Amova Asset Management also holding a slight overweight.Maeda has been adding to Nomura's gilt position this year, opting for 10-year maturities. He said "the worst is over for the UK" as inflation is heading lower and fiscal conditions are set to improve.
"The market turmoil we saw during the period of former Prime Minister Liz Truss is likely to have incentivized the government to be more fiscally prudent," he said, adding that tax increases expected at the November budget are a positive sign for investors.
The prospect of spending cuts and tax hikes to be announced next month and data last week showing UK inflation is easing are likely to raise the possibility of rate cuts, with economists at Goldman Sachs Group Inc. predicting the BOE will lower borrowing costs as early as next week. Swaps traders now favor at least two more quarter-point reductions by the end of next year.While Maeda sees gilts as attractive over the next six to 12 months, he is also aware of long-term risks facing the country's economy, with the ongoing budget challenges and the lingering impact of Brexit.
"Over the longer term, I have doubts about UK stability, given inflation risks tied to immigration, and ongoing questions around fiscal discipline," he said. "But for the near term, we like these levels."
