Thursday’s move by the European Central Bank (ECB) to cut its benchmark interest rate to an all-time low of 0.5 percent sends a clear signal that the pace of the economic recovery in Europe continues to lag behind the region’s needs and expectations according to Fran Rodilosso, Fixed Income Portfolio Manager at Market Vectors ETFs.
“For fixed income markets, I believe the ECB rate cuts are a near-term positive,” said Rodilosso. “But the story they tell of the continued sluggishness in Europe is not a good one.”
“The expectation appears to be that once the ECB runs out of more conventional monetary measures; i.e., when they have no more room to cut rates, that they will more aggressively pursue ‘unconventional’ measures,” he continued. “However, according to Mario Draghi’s latest comments, the market might actually see a negative ECB deposit rate before that occurs.”
Rodilosso also pointed out that the ECB is far from being alone in struggling to jumpstart a sluggish economy. “Just this week, the FOMC (Federal Open Market Committee) indicated that it would step up the level of its asset purchase program, if necessary, which goes beyond the current $85 billion a month that it is presently pursuing, citing persistently high unemployment and federal budget cuts. As we saw with Europe, I believe the FOMC statement reflects the fact that the existing policy is not having the fully desired effect.”
“However, credit markets in the U.S. and, now to an increasing degree, in Europe are likely to remain beneficiaries of the added liquidity in the market,” he added. “And it appears central banks want to send a signal that there could be plenty more liquidity to come. “
Mr. Rodilosso has 20 years of experience trading and managing risk in fixed income investment strategies, including 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM), Fallen Angel High Yield Bond ETG (NYSE Arca: ANGL),International High Yield Bond ETF (NYSE Arca: IHY), Investment Grade Floating Rate ETF (NYSE Arca: FLTR), LatAm Aggregate Bond ETF (NYSE Arca: BONO), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), Renminbi Bond ETF (NYSE Arca: CHLC), and Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHY). As of March 31, 2013, the total assets for these ETFs amounted to approximately $1.9 billion.
Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions.
Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. This is not a recommendation to buy or sell any security nor is it intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Non-Van Eck Global proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
About Market Vectors ETFs
Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totaled $26.1 billion in assets under management, making it the fifth largest ETP family in the U.S. and ninth largest worldwide as of March 31, 2013.
Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes. Van Eck Global has offices around the world and managed approximately $35 billion in investor assets as of March 31, 2013.
There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. Debt securities carry interest rate and credit risk. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. Credit risk is the risk of loss on an investment due to the deterioration of an issuer's financial health. The Funds' underlying securities may be subject to call risk, which may result in the Funds having to reinvest the proceeds at lower interest rates, resulting in a decline in the Funds' income.
The Funds may be subject to credit risk, interest rate risk and a greater risk of loss of income and principal than those holding higher rated securities. As the Funds may invest in securities denominated in foreign currencies and some of the income received by the Funds may be in foreign currency, changes in currency exchange rates may negatively impact the Funds’ returns. Investments in emerging markets securities are subject to elevated risks which include, among others, expropriation, confiscatory taxation, issues with repatriation of investment income, limitations of foreign ownership, political instability, armed conflict and social instability. Investors should be willing to accept a high degree of volatility and the potential of significant loss. The Funds may loan their securities, which may subject them to additional credit and counterparty risk. For a more complete description of these and other risks, please refer to the Funds’ prospectus and summary prospectus.
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