Aegon Asset Management bond fund manager Stephen Snowden says investors must remain cautious on peripheral Europe despite credit spreads being the widest they have been in the UK corporate bond market since 2009.
Snowden returned to Aegon this month, seven years after he left to join Old Mutual Asset Managers.
He says that problems in the eurozone will keep reappearing because solutions so far have effectively been “liquidity patches” rather than “solvency solutions”.
Snowden says his position now is markedly different to his views in 2009, when he said the UK corporate bond market presented an opportunity of a lifetime. He says: “On that occasion, the decision surrounded corporate and bank health and the ability for them both to fund themselves and recapitalise. On this occasion, concerns have moved from a corporate to a sovereign nature.”
Snowden, who takes on the management of Aegon’s investment-grade bond and investment-grade global bond funds on September 1, says it is unlikely that Italy will end up in the same situation as Greece.
He says: “As the third-biggest bond market in the world, if Italy were to fail we would see a global crisis on the same level as 2008 if not worse, so I would say it is too big to fail.”
Snowden said he would only be concerned if Italian 10-year bonds breached 6 per cent for a prolonged period.
He says: “If they stayed above that point, they would create a new trading range of 7 per cent and that is the recognised point of unsustainability in terms of funding itself.”