Italian Bonds Catching Eye of Spain’s Largest Investment Manager

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Spain’s largest fund manager says Italy will be the next euro country to exit economic intensive care.

InverCaixa Gestion SA, whose fund managers invest the equivalent of $45 billion for clients, is buying Italian bonds and stocks as they beat Spanish securities. When Prime Minister Matteo Renzi took power in Rome in February 2014, Italian 10-year bonds yielded 3.6 percent, or 0.06 percentage point more than the equivalent Spanish debt. Since then, the yield has almost halved and the spread reversed to favor Italy, also thanks to bond purchases by the European Central Bank.

“We are investing more in Italy than in Spain because of the changes the government has made there,” said Guillermo Hermida, chief investment officer at the company. In Italy, “they’ve reformed the job market, made strong improvements to the public workforce and lowered taxes,” he said.

Both countries passed laws aimed at reducing budget deficits and making their economies more competitive after their bonds were battered in the earlier stages of the European debt crisis. Spain, which holds elections this year, is on track to grow more quickly than most of peers in the euro region, while Italy is just emerging from recession.

Among his changes, Renzi, 40, is set to ease mergers among small cooperative banks next year and is considering new regulations for courts and public agencies.

Good Omen

“This all augurs for more economic growth in Italy,” said Hermida, whose firm is the fund business of CaixaBank SA. “We are buying Italian stocks, particularly in banking, and acquiring government debt, mostly medium-term and long term, since the country has a more solid fiscal position.”

Italian stocks also have had a better run than Spanish ones since Renzi took power, with Italy’s FTSE MIB Index rising 15 percent in the period through Friday this week, compared with a 12 percent advance for the Spanish Ibex 35 Index.

That’s not to say Italy’s better performance is assured. Bank of Italy Governor Ignazio Visco said this month the nation still had high debt and more effort was needed “to succeed in putting our country on a higher growth path.”

Italy’s economy grew 0.3 percent in the first quarter from the previous three months, ending a recession that lasted more than three years. The Bank of Italy forecast an increase of 0.7 percent this year and 1.5 percent in 2016.

Spanish Prime Minister Mariano Rajoy’s government is forecasting gross domestic product to increase 3.3 percent this year and 3 percent in 2016.

“Italy has made a lot of progress although, of course, more needs to be done,” said Luigi Speranza, an economist at BNP Paribas SA in London. “The economy is growing slower than the Spanish, but overall it’s a positive picture, with reforms such as in the labor market.”

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