How Will Bond Markets React to Diverging Economic Policy?

A rare divergence in central bank monetary policy may well unfold in December. The US Fed appears determined to raise interest rates while the ECB has hinted at further stimulus

Andy Brunner 19 November, 2015 | 9:54AM

Following a torrid period for riskier assets, that included the first serious correction in stock markets since 2011, world equity indices recorded their strongest monthly gains in four years in October, a move that has continued into the current month. Worries over global growth gradually eased as Chinese stimulus plans and improving emerging market economic data helped alleviate investor concerns.

With main market government bonds generally ceding prior gains, global equities outperformed global bonds by nearly 12% from 29/9 to 4/11. Unsurprisingly, cyclicals led the recovery and the main equity indices and high yield debt, together with emerging market equities, bonds and currencies, all rebounded strongly.

China Cuts Interest Rates

Once again, there was considerable monetary policy commentary but the only central bank to act was China’s PBOC which cut interest rates for the sixth time in twelve months and again lowered the reserve requirement ratio for commercial banks.

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About Author

Andy Brunner

Andy Brunner  is Head of Investment Strategy, Morningstar UK

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