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Euro 2016: the bond investor’s guide to the odds

Euro 2016: the bond investor’s guide to the odds

Fans across Europe are preparing for the continent’s biggest football tournament – Euro 2016. 24 national teams will battle it out over 30 days across 10 venues in France. Here, we take a look at the economies of tournament finalists, and weigh up their chances of success on the pitch.


France – Odds 3/1
Francois Hollande has always had a tendency to embellish his country’s economic fortunes. After years of lacklustre growth, the president recently declared ‘Ça va mieux!’ (things are improving). You can’t fault the man’s irrepressible optimism but, this time, he may actually be right; the country has now recorded three consecutive quarterly increases thanks to cheap energy prices and a low interest rate environment.

Elsewhere in market news, 50 is the new 30 when it comes to European bond maturities. We have seen a tranche of 50-year bonds come to market recently as France issued their first 50-year bond since 2010.

The hosts are favourites with the bookies at 3/1. A home advantage has clearly been taken into account when weighing up the odds and perhaps rightly so; the French won this championship in 1984 and then the World Cup in 1998, both on home soil. Verdict: Semi-Finals

Albania - Odds 500/1
Albania’s economy continues to grow, albeit in unspectacular fashion. Economic sentiment has decreased recently, partly due to deteriorations in the construction and services sector. The Central Bank remains accommodative, although record-low interest rates aren’t being translated into growth due to the high share of non-performing loans which are causing banks to be more risk averse.

‘Plucky’ is a word that could describe the Albanian football team. This is their first major tournament and many will understandably write them off, but let’s not forget this little nation have beaten both Portugal and France in the last two years. While they won’t be lifting the trophy on 11 July, they may well turn some heads. Verdict: 3rd place Group

Switzerland – Odds 60/1
The Swiss economy is still under pressure due to a strong franc. The financial sector and various exporting industries are all showing a drop in confidence. Private consumption is likely to be weighed on this year as corporate consolidations send the unemployment rate upwards. On a more positive note, Switzerland’s National Bank appears to be pulling out the stops to prevent the franc from appreciating further.

Usually a safe haven for investors, the Swiss aren’t necessarily renowned for their footballing prowess. They lost both legs against England 2-0 in the Euro qualifiers last year but they’re a team with some interesting players and we expect them to sneak through as Group A runners up. Verdict: Last 16

Romania – Odds 280/1
Aggressive fiscal policy saw Romania record its fastest rate of growth since 2008, growing 3.8%1 last year. Industrial production is rising and retail sales have posted double-digit growth for 8 months running. Sentiment remains is positive, although widening fiscal and current account deficits have stemmed optimism.

The Romanian’s lack flair and positivity on the pitch and we expect them to prop up Group A as a result. Verdict: 4th place Group


England & Wales: Odds 8/1 – 50/1
With the impending EU referendum vote on 23 June, the UK could be facing a potential double exit from Europe in the same week if both teams fail to qualify from the group stages.

While England and Wales supporters will be hoping their teams are in full swing ahead of kick off, UK businesses and markets are in standby mode as economic data takes a dive along with the sterling. Opinion is increasingly divided about what is best for the UK and markets are seeing this uncertainty feed through.

A big issue to consider is the fact that business investment looks like it may be held back for a number of years, regardless of an in or out vote. The reason lies behind a shrinking sterling corporate bond market. In the early 2000s, sterling took up as much as 6% of the investment-grade corporate bond market. Now, according to the Economist, it takes up just 2%. This will impact liquidity in the market, as well as pushing up the price of issuing sterling corporate bond relative to other currencies such as the euro.

On the pitch, England and Wales will be hoping to upset the odds. England had a remarkable string of wins in the group stages – winning all 10 games – but they have looked a little less composed since, struggling to beat Turkey in their final warm up game and losing to the Netherlands before that. For Wales, qualifying from the group stages will be seen as a realistic target. Still, with Real Madrid maestro Gareth Bale in the team, odds of 50-1 seem a little long. Verdict: England – Semi-Finals, Wales – Last 16

Russia – Odds 70/1
Russia has recently launched its first sovereign debt offering since the Ukraine crisis. This is a tactical move in a bid to show Moscow is still a big game player within the international market place, despite sanctions by the US and EU.

The economy has enjoyed a significant turnaround since the turn of the year. As oil prices continue their recovery from January lows, we have witnessed the rouble appreciate by over 30%, while Russian government bond prices have risen steadily.

Russia may lack big name players on the pitch but they have plenty of belief and ambition. Head coach Leonid Slutskiy sees qualifying from the group stages as the bare minimum. This may be a tall order given the Russian’s have progressed to the knock-outs just once before in 2008 (when they lost to Spain in the semi-finals), but they have some in-form strikers who will look to add to their goal tallies. Verdict: Last 16

Slovakia – Odds 250/1
The Slovakian economy continues to perform relatively well thanks to a boost in investment driven by EU funds. A weak euro, low oil prices and healthy dynamics in the job market have also acted as tailwinds as the unemployment rate hit a seven-year low in March.

The Slovakian football team are up against it. On paper, they look to be one of the weakest in the group, although players and supporters can take heart from strong performances in the group stages. With Leicester City FC showing us that anything can happen in this game, no team should be underestimated. Verdict: 4th place Group


Germany – Odds 5/1
In the centre of Europe lies Germany, an economic and political powerhouse with a not-so-bad ‘fußball‘ team. German growth is now at its fastest pace in two years despite rather sluggish investment levels. Record-low unemployment is supporting consumer demand as ultra-loose monetary policy from the European Central Bank (ECB) acts as a significant tailwind. Expansion is expected to slow over this quarter as policy makers adopt a ‘wait-and-see’ attitude toward inflation while German government bonds are wedged in their tightest range in more than a year.

The German’s come into this tournament on the back of some strong performances. They dominated possession in their group games, although interestingly didn’t score as many goals as one might expect. Nonetheless, expectations are high and there are few who would confidently back against the current world champions. Verdict: Champions

Northern Ireland (NI) – Odds 440/1
The NI economy grew by 1.4% last year, according to official statistics using the NI Composite Economic Index (NICEI). This is well below the 2.2% GDP growth for the UK as a whole, however. The construction sector was hit the hardest after the bursting of the property bubble led to a collapse in output and tens of thousands of job losses.

Group C is an unforgiving group and this team will need to perform to the best of their abilities if they have even the slightest chance of progressing to the knock-outs. Verdict: 4th place Group

Ukraine – Odds 120/1
The Group C outsiders will be hoping the improving economic data starting to trickle out of Ukraine will translate into some impressive performance on the pitch.

The crisis-torn country has endured a tough couple of years but, like Russia, 2016 has brought with it a change in fortunes. It remains in precarious position though and graciously received a $25 billion bail-out deal from the West in May.

Ukraine will do well to make it out of the group. The team lacks guile and depth, not helped by the fact their two star players fell out spectacularly when playing for their respective club sides at the start of May. Verdict: 3rd place Group

Poland – Odds 50/1
Amid external headwinds, the Polish economy took advantage of strong domestic demand towards the back end of 2015. Recent data suggests that the rally may be tailing off however. The zloty has dropped in value which has seen yields on 10-year bonds rise. Various conflicts between the government and constitutional court hang in the air leading to speculation that credit rating agency, Moody’s, are looking at downgrading Poland’s current A2 rating.

The Poles have every chance of progressing to the knock-out rounds. This may sound surprising given they haven’t done so in a major tournament since 1986, but this team are capable of upsetting the odds. They have a truly world class player in Robert Lewandowski and a place in the quarter finals is a very real possibility if he stays fit. Verdict: Last 16


Croatia – Odds 30/1
The Croatian economy finally returned to growth in 2015 after a six-year period of recession. GDP grew by 1.6% with consumption and industrial production both showing much improved figures. Unemployment continues to decline steadily, while the Croatian government have recently adopted the National Reform Programme. This a set of measures designed to give the economy a boost, while also reassuring the European Commission that reform is top of the government’s a.

Luke Modric is one of Real Madrid’s many great players. He is also Croatia’s superstar. The nifty midfielder is in sublime form at the moment and will be looking to catapult Croatia into footballing history. With just two losses since their early World Cup exit, Croatia should be taken more seriously than the bookies may suggest. Verdict: Quarter-Finals

Czech Republic – Odds 150/1
The promising growth of 4.3% recorded last year was helped by two key factors: a drop in energy prices and increased investment thanks to the €7.6 billion received in EU structural payments. Momentum is waning however, with the latest economic data confirming a slowdown in economic activity.

The Czechs tend to be underestimated on the football field. Runners-up in 1996 and semi-finalists in 2004, this team know how to perform in these European championships. This is a tough group though, and qualification out of it will be difficult. Verdict: Last 16

Spain has joined France and Belgium in taking advantage of a surge in demand for ultra-long dated debt.

Spain – Odds 6/1
Spain has joined France and Belgium in taking advantage of a surge in demand for ultra-long dated debt, issuing a 50-year bond for the first time in two years. Investors are hungry for these ‘Methuselah’ bonds (so called in reference to the oldest man in the Hebrew bible), and are increasingly being issued in Europe thanks to the ECB’s quantitative easing programme and negative interest rate environment.

The reigning European champions have a strong chance of retaining their title for the third successive time, despite enduring an atrocious World Cup two years ago. Their run to this year’s championship has been far from spectacular but there are some world class players in the lineup. The bookies haven’t written them off, but they’ve labelled France and Germany as the two to beat. Seldom, however, are champions more dangerous than when the odds are against them. Verdict: Runners-up

Turkey – Odds 70/1
Ahmet Davutoglu, the country’s Prime Minister, announced in early May that he will be stepping down following a political tussle with President Recep Tayyip Erdogan. Away from the political predicament, a dark shadow clouded by a rise in suicide attacks, war in neighbouring Syria and ongoing clashes with the Kurds masks a positive growth story that has seen Turkey become one of the fastest-growing states in the G20 group.

The nation’s footballers snuck through qualifying thanks to a late rally. This team are no strangers to leaving things late, though. In 2008, they overturned Switzerland at the death before overcoming deficits against group rivals Czech Republic and Croatia on their way to the semi-finals. Verdict: 4th place Group


Belgium – Odds 10/1
Belgium has privately placed 100-year paper as well as issuing a 50-year bond in recent months. Centennial bonds are a rarity in debt markets but the quick sale of these two bonds in quick succession shows that a growing number of investors expect global inflation to stay in the doldrums for decades.

The dark horses of old are now legitimate title contenders. They have some excellent players in their squad and have lost just twice since their quarter-final World Cup exit. Lukaku and Benteke are two of the Premier League’s most prolific goal scorers and defences will do well to keep them out. Verdict: Quarter-Finals

Italy – Odds 18/1
Eased financing conditions as well as healthy private consumption due to the boost to real disposable incomes recently should continue to support Italy’s modest growth. The country is also expected to become the latest state to tap yield-hungry buyers for 50-year debt, despite possessing one of the largest debt burdens globally at 133% of GDP.

The Italians are another team that flopped at the last World Cup and their preparation for this tournament hasn’t been ideal. Still, they are a team who know how to win and Chelsea-bound coach Antonio Conte will be looking to bow out on a high. The loss of two of their key midfielders through injury won’t help however. Verdict: Last 16

Ireland – Odds 170/1
Ireland recorded the fastest growth rate within the EU last year. Economic headwinds and uncertainty over a potential Brexit are beginning to dampen progress though.

The Irish will be hoping to improve on the one goal scored in the whole of their 2012 tournament. Zero points were recorded while 9 goals were conceded. Qualification looks unlikely but if they can bag one big result and draw elsewhere, they may just sneak through the group. Verdict: 4th place Group

Sweden – Odds 110/1
Ultra-accommodative monetary policy saw Sweden’s economy grow at a reasonable pace last year. Nonetheless, political uncertainty and a surge in migrants come at a time when unemployment is rising back towards its long-term average.

The Swedes are a team that are always there or thereabouts, and will be eyeing up a place in the last 16 at the very least. With Italy and Belgium in the group, Erik Hamren’s side will be looking to talisman Zlatan Ibrahimovic for inspiration. A tough ask but a very real possibility. Verdict: 3rd place Group


Austria – Odds 47/1
The economy has maintained momentum so far this year. Growth has been supported by private consumption and a rise in exports. Politically, the far-right Freedom Party (FPÖ) came narrowly close to winning the presidential election and poses a significant challenge to the traditional parties. Immigration remains a key concern, and much criticism has been made of Vienna’s decision to build fences to keep refugees away.

Austria will arrive in France for only their second European championship. They have some gifted players and are expected to progress out of a comparatively weak group. They will feel they have nothing to lose, but whether they’ve got the astuteness and tactical nous of the more experienced teams to go deep in to the tournament is debatable. Verdict: Last 1

Hungary – Odds 470/1
The Hungarian economy continues to grapple with weak inflation despite being in reasonable shape. Interest rates have been cut by a further 0.15% to 0.9%, the third cut in successive months.

Once a power house in European football, Hungary has failed to reach a major tournament since 1986. With little seriously expected of them, this is a team that really should play with a nothing-to-lose attitude. Verdict: 4th place Group

Iceland – Odds 130/1
In March, Iceland issued its first benchmark bond in euros since the country’s financial crisis. Two times subscribed, the bond issue emphasises the recovery in the Icelandic banking sector. On a less positive note, Prime Minister Sigmundur Gunnlaugsson was forced to step down in April after failing to disclose that his multimillion dollar stakes in Iceland’s failed banks were held in offshore tax havens.

Iceland has a population of just 323,000, the same number as the London Borough of Croydon2. They put many other countries to shame through their excellent coaching setup and they’ll be looking to silence their critics once again. It won’t be easy to progress to the last 16, but if the players can execute their game plan then there’s no reason why they can’t. Verdict: Last 16

Portugal – Odds 21/1
Portugal’s finance minister has recently urged policy makers and investors to be patient. The country is struggling with a heavy debt load and sluggish economic growth, despite the debt falling since 2014. The ECB recently dealt another blow, stating that it will be limiting its sovereign debt buys of Portuguese bonds due to concerns about hitting its purchase caps.

The country boasts a wonderfully talented group of players and look, on paper at least, like they should be title contenders. Strangely, though, they are a team that always seem to underachieve in the big tournaments. Verdict: Quarter-Finals

1Focus Economics
2UK National Statistics

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