New quantitative easing measures are forecast to reach 20% of GDP in the US, 9% in the UK, and over 7% in the eurozone, according to credit ratings agency Fitch, which reported that macro policy easing responses to COVID-19 have reached “unprecedented” levels.
- The ECB and the Fed expanded their monetary stimulus measures
- Strong US jobs data briefly drove up ten-year Treasury yields
- Demand for fixed income funds doubled in May
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New quantitative easing measures are forecast to reach 20% of GDP in the US, 9% in the UK, and over 7% in the eurozone, according to credit ratings agency Fitch, which reported that macro policy easing responses to COVID-19 have reached “unprecedented” levels. Meanwhile, a major feature of emerging markets’ policy response has been widespread cuts in interest rates – despite sizeable currency shocks – notably in Brazil, India, South Africa, Mexico, and Turkey.
“Corporate debt issuance has risen to new highs”
US non-financial corporations issued record amounts of investment-grade bonds during May totalling US$584 billion, more than double the amount registered in May 2019. Fitch reported that around 85% of this year’s bond volume was issued in March, April, or May, and “general corporate purposes” or debt repayment were the principal destinations for proceeds. More than half the issuance was to be found in the technology, transport, energy, health and pharmaceutical, and utilities sectors.
Corporate debt issuance has risen to new highs as central banks announced “extraordinary” monetary policy strategies; however, according to S&P Global Ratings, some investors and policymakers are concerned about the increased amount of leverage and the potential implications on future corporate credit quality. Since the start of 2019, the amount of US corporate debt has grown by 10% compared with growth in European corporate debt of 2%.
Demand for fixed income funds doubled in April, and the Investment Association (IA) found that bonds were the most popular asset class for UK retail fund investors during the month, notching up net retail inflows of £1.9 billion. Global Bonds were the fourth most popular IA sector in April, and £ Corporate Bond and £ Strategic Bond also appeared in the list of top ten sectors. The only fixed income sector to experience net retail outflows during the month was UK Gilts, which suffered its fourth consecutive month of outflows.
The European Central Bank (ECB) increased its programme of asset purchases by €600 billion to €1.35 trillion during June and extended it until at least June next year. Meanwhile, the US Federal Reserve (Fed) expanded its programme to include the direct purchase of corporate bonds. Having started 2020 at 1.92%, the ten-year US Treasury bond yield rose from 0.65% to 0.66% over June, but spiked as high as 0.91% early in the month as investors drew encouragement from stronger-than-expected employment data.
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