February 2018
Global bond investors experienced an eventful February as investors faced up to the possibility that interest rates in the US might rise sooner than anticipated. Demand for bonds dropped sharply at the beginning of February as stronger-than-expected US labour market data stoked speculation over inflationary pressures.
- The eurozone’s economy grew by 2.5% during 2017
- Fixed-income assets remained in demand in January
- Credit ratings agency Fitch reaffirmed the EU’s “AAA” credit
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Global bond investors experienced an eventful February as investors faced up to the possibility that interest rates in the US might rise sooner than anticipated.
“Stronger-than-expected US labour market data stoked speculation over inflationary pressures”
Demand for bonds dropped sharply at the beginning of February as stronger-than-expected US labour market data stoked speculation over inflationary pressures. Later in the month, bond yields were driven up once again following the release of minutes from the January meeting of the US Federal Open Market Committee (FOMC) indicated that policymakers expect US economic growth to continue to gather pace. Towards the end of the month, investors’ appetite for bonds began to recover as investors sought safe havens against a backdrop of falling share prices. The yield on the benchmark US Treasury Bond rose over February as a whole from 2.73% to 2.93%.
The eurozone’s economy posted growth of 2.5% over the 2017 calendar year. Credit ratings agency Fitch reaffirmed the EU’s “AAA” credit rating alongside a “stable” outlook. Although the EU’s loans to weaker member states continue to pose a “significant” credit risk, these loans are concentrated amongst just a few countries. In general, Fitch believes that most member states are well equipped to meet their EU budget commitments, and the overall credit quality of EU constituents remains high. The benchmark German government bond yield eased slightly during February from 0.63% to 0.62%, while the ten-year French government bond yield edged lower, falling from o.97% to 0.95%.
Elsewhere in the region, Fitch upgraded its credit rating for Greece from “B-“ to “B” with a “positive” outlook. Although this means that Greece retains its “junk” status, Fitch cited its belief that the sustainability of the country’s general government debt is set to improve, supported factors including continued economic growth, lower political risks, and ongoing fiscal reforms. During February, the yield on the ten-year Greek government bond climbed from 3.67% to 4.38%.
Fixed income assets remained in demand in January, according to the most recent data from the Investment Association (IA), and fixed income enjoyed net retail inflows of £1.6 billion during the month. The most popular sector during January was £ Strategic Bond; demand for funds in the Global Bonds and Global Emerging Market Bonds also rose strongly. The only fixed income IA sector that experienced net outflows over the month was the UK Index-Linked Gilts sector.
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