Global stock and bond markets bounced back on Friday, June 30, as the scramble among investors to adjust their positions in anticipation of the end of ultra-loose monetary policy began to slow.
Global stock markets collectively had their best opening half-year in years, a strong run capped by turbulence this week that could be a harbinger of greater volatility in the second half of the year.
All but four of the 30 major indexes representing the world’s biggest stock markets by value have risen this year, a first-half performance unmatched since 2009,
Market sentiment remained unsettled, however, and the extent of the rebound was modest compared with the heavy selling of the previous two sessions, leaving equities indices sharply lower on the week and bond yields within reach of recent highs.
The trading pattern followed remarks by the heads of the European Central Bank, the Federal Reserve, the Bank of England and the Bank of Canada which raised expectations that the period of historically low interest rates and unprecedented central bank bond buying will soon recede.
It triggered a rush by some investors to reduce their exposure to government debt, driving bond prices down and pushing yields higher. Even after Friday’s recovery, the 10-year bond yields of Germany, France and the UK have all risen by about 20bp this week.
“We now have near-unanimous views among developed market central banks that it is time to move towards a normalisation of monetary policy,” said Paul Flood, manager of the Newton Multi Asset Income Fund.
“Investors reliant on the negative correlation between bonds and equities will be feeling the pain the most, highlighting the risks of a policy that has focused on asset price inflation. For now, cash is king.”
In afternoon European trade, 10-year bond yields were steady. Germany’s benchmark Bund yield was flat at 0.46 per cent. Italy also held steady at 2.143 per cent, and the UK’s was just over 3 basis points lower at 1.218 per cent. Yields move inversely to prices. The policy-sensitive 2-year Bund yield ticked down 1 basis point to minus 0.568 per cent.
Stocks are finding support, with indices bouncing back from multiweek lows. The region-wide Euro Stoxx 600 ticked up 0.2 per cent, with the FTSE 100 up 0.1 per cent in London and the CAC 40 up 0.2 per cent in Paris.
Wall Street indices ticked higher, with the S&P 500 and the Dow Jones Industrial Average both up 0.4 per cent in opening trade after technology stocks led a sell-off on Thursday.
