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Global bond market review: Seeking safe havens
21st February, 2020

Global bond yields declined during January. Investor concerns grew over Coronavirus and a weak 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

The Coronavirus continued to spread over the month. Slowdowns in travel, corporate and manufacturing raised speculation over its economic impact.

Credit rating agency Fitch assessed the impact of Coronavirus on sovereign credit ratings. Concluding, the outbreak would have to rise “substantially” to have a significant effect. Fitch believe that, due to the regions financial buffer, any short-term economic impact can be offset through policy easing. The severity of Coronavirus’ impact could intensify if the outbreak becomes prolonged. Particularly in 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%. Earlier in the week, President Donald Trump urged the Fed to cut rates. In January, the yield on the benchmark US Treasury bond fell to its lowest level since September. Towards the end of the month, the yield curve inverted for the first time since October. This triggered 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. Speculation grew around policymakers changing their inflation target. Putting the current target of below but close to 2%, into the spotlight. 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, and only equities surpassed them with £1.8 billion. The UK All Companies experienced a sharp reversal of fortune, on the back of a UK General Election. Pound Sterling Strategic Bond was the second-best-selling IA sector. The Global Bond and Global Emerging Markets Bond sectors also experienced a resurgence in demand during January.

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