The pressure on the ECB to act further increased after a disappointing growth figure was released last week. Eurozone GDP expanded by only 0.2% in the first quarter even though it was boosted by the unusually mild winter weather. The current economic recovery remains far too weak to halt disinflationary pressures.

## The yield plays that perform very well this year


## Search for yield theme even more dominant

The search for yield, an important driver of investor flows this year, has further intensified. With the cloud of less-than-zero rates and more unconventional monetary easing more dominantly on the policy horizon for at least another 4 to 6 months, the probability of ongoing downward pressure on European bond yields has increased. Meanwhile, near-term risks surrounding Ukraine or the European elections are also “Grey Swan” events that are difficult to ignore completely.

## No rise in bond yields expected in the next few months

Although in the medium term we still anticipate government bond yields to rise, for the next few months we are less convinced this will happen. We moved our underweight position in government bonds (Bunds in particular) to neutral. As more ECB action is already largely priced in at current levels, we do not expect a significant further decline in bond yields either.

## Favourable environment for real estate equities

One of the main beneficiary of low or declining bond yields are real estate equities. The downward trend in bond yields since the start of this year is a key driver of real estate performance. Besides that low yields are favourable for this relatively highly leveraged asset class, also the attractive dividend yield plays an important role.