Global bond yields surged during February as hopes over economic recovery and speculation over rising inflationary pressures prompted investors to sell off global bonds. Expectations were fuelled the prospect of economic stimulus in the US, as President Joe Biden’s US$1.9 trillion “American Rescue Plan” was approved by the House of Representatives at the end of the month.
- The ten-year T-bond yield reached its highest level for over a year
- Global bond issuance is set to decline in 2021
- Demand for responsible bond funds continued to rise
To view the series of market updates through February, click here
Global bond yields surged during February as hopes over economic recovery and speculation over rising inflationary pressures prompted investors to sell off global bonds. Expectations were fuelled the prospect of economic stimulus in the US, as President Joe Biden’s US$1.9 trillion “American Rescue Plan” was approved by the House of Representatives at the end of the month. The Federal Reserve (Fed) made it clear that the US is not yet close to policymakers’ goals for inflation or employment, and the Fed is widely expected to continue its support for the country’s economy.
“The Fed is widely expected to continue its support”
The yield on the ten-year US Treasury bond ended the month at 1.42% compared with 1.07% at the end of January and 0.93% at the start of the year. During February, however, it climbed to 1.54%, reaching its highest level for over a year. Elsewhere, in the opening plenary session of the European Parliamentary Week 2021, President of the European Central Bank (ECB) Christine Lagarde said that the ECB was “closely monitoring the evolution of longer-dated nominal bond yields”.
Following record issuance levels in 2020, global bond issuance is set to decline by 3% to US8 trillion this year, according to S&P Global Ratings. Annual issuance totals reached new highs across almost every sector last year, reducing the likelihood of similar growth this year as the global economy and financial markets return to more normal conditions. Meanwhile, low yields, rising expectations for US inflation, and “record-high cash balances” on company balance sheets are likely to reduce the need to raise additional funds and their attractions for investors. Nevertheless, these factors are likely to be offset to some degree by a rising proportion of sovereign debt with negative yields, and a resurgence of corporate activity.
Bond funds were the best-selling asset class during January, according to the Investment Association (IA), posting net retail sales of £2.2 billion. With net retail sales of £596 million, Global Bonds was the second best-selling IA sector over the month, superseded only by the Global sector with sales of £826 billion. Elsewhere, £1.2 billion was invested in responsible investment funds during January, with £180 million invested in bond funds. By the end of January, responsible investment funds under management totalled more than £56 billion, and 20% of this was invested in bond funds.
A version of these market briefings are available to use in our newsletter builder feature. Click here
