Global bonds had a choppy October as expectations of fresh Covid-19 relief funding in the US were dashed by deadlock between the Republican and Democratic parties. Investor sentiment was further destabilised during the month as the “second wave” of coronavirus infections continued to sweep Europe and the US.
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- The rate of global bond issuance is expected to moderate
- European default rates rose in September
- Daily Covid-19 infection rates hit record levels in the US
Global bonds had a choppy October as expectations of fresh Covid-19 relief funding in the US were dashed by deadlock between the Republican and Democratic parties. Investor sentiment was further destabilised during the month as the “second wave” of coronavirus infections continued to sweep Europe and the US. Daily infection rates in the US reached record levels during October, while several European countries, including France and Germany, implemented or intensified social distancing measures and lockdowns. The yield on the ten-year German government bond declined during October, falling from -0.52% to -0.62% over the month. Meanwhile, the ten-year US Treasury bond yield rose to its highest level since early June during October, climbing over the month from 0.69% to 0.88%.
“Global bonds has been the most popular IA sector for two months out of the last three”
Global bond issuance was very strong during the second and third quarters of 2020, but credit ratings agency S&P Global Ratings expects the pace of issuance to moderate over the fourth quarter. Nevertheless, issuance over the whole of 2020 is forecast to be about 16% higher than in 2019. Issuance in 2021 is predicted to decline by around 3%, weakened by uncertainties over the coronavirus pandemic and the likelihood of a vaccine; the future path of monetary policy; the aftermath of the US Presidential election; Brexit; and possible volatility linked to trade negotiations. Looking further ahead, however, S&P believes that, despite a “likely decline” in 2021, debt is well-placed to remain robust in the years to come.
European default rates rose during September: Fitch Ratings’ trailing 12-month default rate increased by 3% amongst high-yield corporate bonds, and expects default rates to continue to rise into 2021, particularly in sectors that are affected by the reimposition or extension of lockdown measures and travel restrictions.
Bond funds enjoyed strong net retail sales in September, and fixed income was the most popular asset class for UK retail investors during the month, achieving net retail sales of £1.2 billion, according to the Investment Association (IA) . Global bonds has been the most popular IA sector for two months out of the last three, and notched up record net retail inflows of £937 million in September. The IA also reported solid demand for conventional and index-linked gilt funds. The only IA fixed income sector to remain out of favour was £ High Yield, which suffered outflows of over £113 million.