Investors’ attention shifted from safe havens to riskier assets during November, buoyed by mounting optimism over Covid-19 vaccine development and by Joe Biden’s victory in the US Presidential election.
- A divided Congress could hamper Biden’s administration
- Inflation in the eurozone is set to remain negative for some time
- Corporate defaults reached levels last seen in the Global Financial Crisis
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Investors’ attention shifted from safe havens to riskier assets during November, buoyed by mounting optimism over Covid-19 vaccine development and by Joe Biden’s victory in the US Presidential election. Share prices rose and bond prices fell; while the ten-year US Treasury bond yield eased from 0.88% to 0.84% over November as a whole, it rose as high as 0.98% during the month. Nevertheless, there are still question-marks in the US over which party will have control of the Senate, which will not be decided until the state of Georgia holds runoff elections in January. Credit ratings agency Fitch believes that a divided Congress is likely to hamper the ability of President-elect Biden’s administration to pass legislation addressing key structural fiscal and economic issues.
“The ECB is set to continue its programme of stimulus measures”
The International Monetary Fund (IMF) warned that increasing infection rates continue to hinder global economic recovery and called on countries not to withdraw support too quickly. IMF Managing Director Kristalina Georgieva emphasised the need for “continued strong policy action” and urged leaders to cooperate with each other to achieve more efficient outcomes.
During November, European Central Bank (EBC) President Christine Lagarde warned that inflation in the eurozone is likely to remain negative for longer than expected. The ECB is set to continue its programme of stimulus measures. The yield on the ten-year German government bond strengthened from -0.62% to -0.57% during November, but climbed as high to -0.47% over the month.
Global corporate defaults reached 200 by the start of November, according to S&P Global Ratings. This was the first time since 2009 – during the Global Financial Crisis – that the number of defaults has reached 200. Defaults have increased in the US and Europe: these regions not only have largest number of rated issuers but are also particularly exposed to sectors that have proved vulnerable to the impact of Covid-19, such as energy, consumer and retail, media and entertainment, and hotels. All these sectors had relatively weak credit before the pandemic.
Demand for globally diversified funds was strong during October, according to the Investment Association (IA), and Global Bonds was the second-best-selling IA sector during the month, surpassed only by the Global sector. UK Gilts and £ Corporate Bond were also in the top ten best-selling fund sectors in October; in contrast, the £ Strategic Bond and £ High Yield sectors experienced substantial outflows.
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