Global bond market review: Seeking safe havens

Global bond yields declined during January as investors sought safe havens against a backdrop of rising worry over the Coronavirus, alongside broader concerns over the outlook for global economic growth.

  • The ECB and FOMC maintained their monetary policy stances
  • The benchmark T-bond yield fell to its lowest level since September
  • The US yield curve briefly inverted at the end of January

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Global bond yields declined during January as investors sought safe havens against a backdrop of rising worry over the Coronavirus, alongside broader concerns over the outlook for global economic growth. The Coronavirus continued to spread over the month, and curbs on travel, alongside corporate and manufacturing shutdowns, raised speculation over the disease’s eventual economic impact.

“The ECB launched a review of its monetary policy strategy”

According to credit ratings agency Fitch, the scale of the Coronavirus outbreak would have to rise “substantially” in order to have a significant effect on sovereign credit ratings. Fitch believes that Asia Pacific sovereigns have sufficient financial buffers and enough room for further policy easing to offset any short-term impact on economic activity. However, if the outbreak becomes more prolonged, the severity of its impact could intensify, particularly on countries with significant exposure to tourism. 

The US Federal Reserve (Fed) maintained its key federal funds rate at a range of 1.5% to 1.75% at January’s meeting of the Federal Open Market Committee (FOMC). Earlier in the week, President Donald Trump urged the Fed to cut rates, tweeting: “The Fed should get smart & lower the Rate … There is almost no inflation”. The yield on the benchmark US Treasury bond fell to its lowest level since September during January. The yield curve briefly inverted for the first time since October at the end of the month, triggering fresh concerns over the economic outlook. Over January as a whole, the yield on the benchmark US Treasury bond fell from 1.92% to 1.51%.

The European Central Bank (ECB) launched a review of its monetary policy strategy during the month, generating speculation that policymakers might change their longstanding inflation target of below, but close to 2%. The benchmark German government bond yield fell from -0.47% to -0.64% during January, while the yield on the benchmark French government bond declined from -0.30% to -0.47%. 

Fixed income funds enjoyed net retail inflows of £1.1 billion in December, outstripped only by equities with £1.8 billion, according to the Investment Association (IA). £ Strategic Bond was the second-best-selling IA sector during December, behind UK All Companies, which enjoyed a sharp reversal of fortune following a General Election in which Boris Johnson achieved a large working majority. Funds in the Global Bonds and Global Emerging Markets Bond sectors also experienced a sharp resurgence in demand during the month. 


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