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EU recovery fund plan not a game changer – PIMCO

The European Union’s 750 billion euro recovery fund plan is not a game changer as the level of debt alleviation for the likes of Italy are likely to be marginal, PIMCO’s lead sovereign credit research analyst in Europe said.

“It was a step in the right direction, which could allow peripherals to inject more stimulus into their economies from 2021,” Nicola Mai told the Reuters Global Markets Forum, referring to the EU plan released on Wednesday.

“Not a game changer though as debt level alleviation will be marginal. And uncertainty about political ratification remains significant.”

PIMCO is positioned cautiously on euro zone peripheral bonds, seeing decent value at current levels, Mai said.

Mai added that the European Central Bank’s role as lender of last resort for sovereigns remains key and expects the bank to expand its bond purchases next week, possibly by around 500 billion euros.

He also expects the ECB to add recently downgraded investment grade bonds, known as “fallen angels” to its asset purchases as early as next week.
Source: Reuters (Reporting by Yoruk Bahceli; Editing by Dhara Ranasinghe)

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