In the last decade, we have seen an evolution in the sector in Europe, which is becoming much more solid. If I look at the long term, the ECB is in fact building the Banking Union, while the supporting factor in the short term is represented by the countermoves adopted by the central institution itself and by governments to tackle the pandemic: measures from which banks are still benefiting. In addition, bond valuations, while not as cheap as anywhere in fixed income, are still attractive when compared to other assets, especially in relation to subordinated debt.
So are you pushing on fixed income?
Not really. Our portfolio retains a liquidity component equal to 35%, significantly higher than the historical average which stands at that 10-20% that we believe is physiological and useful at the same time for adjusting the portfolio and seizing opportunities when they arise. We raised it in the second quarter of this year to reflect high valuations and the fact that central banks were preparing to reduce monetary stimulus, frankly we don’t see the conditions to reduce it again.
What could make you change your mind?
A strong spread widening extended to all areas of the bond market such as the one seen in March 2020 at the outbreak of the pandemic, which would give way to seize opportunities in securities for which this movement is not justified. Or an increase in interest rates on a global scale to levels that reflect sufficient inflation expectations based on the scenario we have envisaged and an adequate tightening of monetary policies.