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High demand for safe-haven assets

March 2018

Government bond prices generally rose in March as investors faced the possibility of a trade war. Mounting tensions between the US and China led to a surge in demand during March for perceived “safe-haven” assets such as US Treasury bonds, gold, the Swiss franc and the yen. 

  • Demand for bonds remained robust in March
  • The Fed raised US interest rates by 25 basis points
  • The eurozone’s inflationary backdrop remained subdued

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Government bond prices generally rose in March as investors faced the possibility of a trade war. Demand for bonds remained robust despite ongoing speculation that their bull run might be coming to an end as central banks have continued to scale back their monetary stimulus programmes.

Mounting tensions between the US and China over trade led to a surge in demand during March for perceived “safe-haven” assets such as US Treasury bonds, gold, the Swiss franc and the yen. Having already revealed levies on imports of steel and aluminium earlier in the month, President Donald Trump announced plans to impose tariffs of up to US$60 billion on imports from China, citing the US’s trade deficit with China and China’s “unfair” business practices. China retaliated with tariffs on US exports to China worth about US$3 billion. 

“Demand for bonds remained robust”

The US Federal Reserve (Fed) increased its key federal funds rate by 0.25 percentage points to a range of 1.5% to 1.75% in March. Members of Federal Open Market Committee (FOMC) appear prepared to impose any additional tightening measures into 2019 and 2020. During March, the yield on the benchmark US Treasury Bond declined from 2.93% to 2.75%, while the benchmark German government bond yield dropped from 0.62% to 0.43%. Elsewhere, the ten-year French government bond yield fell from 0.95% to 0.72%.

The annualised rate of inflation in the eurozone eased to 1.1% in February; the euro area’s subdued inflationary backdrop has helped to underpin demand for bonds issued by countries that have benefited from the European Central Bank’s (ECB’s) programme of asset purchases. The yield on the benchmark Italian government bond fell from 1.99% to 1.69% during March, while the benchmark Portuguese government bond yield dropped from 1.84% to 1.43%.

Mixed Asset superseded fixed income in February as the most popular asset class for retail fund investors, according to recent data from the Investment Association (IA). Having experienced net inflows of more than £1.6 billion during January, fixed income funds suffered a net outflow of £136 million in February. Although £ Strategic Bond remained the best-selling IA sector for a second consecutive month, the only other fixed income sector to enjoy positive net inflows was UK Index-Linked Gilts. In contrast, demand for funds in the £ Corporate Bond and Global Bonds sectors fell sharply.


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