Global Bond Markets
18/11/2008
The global economy continued to show further signs of weakness during October. Fears over a worldwide economic recession strengthened following deteriorating US manufacturing, retail sales, unemployment data and falling corporate profits. In addition, sharp falls in employment data, business and consumer confidence were reported across continental Europe. This suggests that the region is facing prolonged recession-like conditions, and indeed the European Commission dramatically downgraded its growth forecast for the region in 2009. Commodity prices plummeted during the month due to concerns over demand in the wake of the economic downturn. For example, oil fell from nearly $100 per barrel to around $60.Against this backdrop inflation statistics eased, and are expected to fall further in the coming months.
During the month, global central banks and governments implemented a series of measures in an attempt to address the issues facing the worldwide economic and financial system. In a concerted effort, the Federal Reserve, Bank of England and European Central Bank all slashed interest rates early in October. Global policy easing continued unabated over the month, with other countries such as China, Australia, Norway, Hong Kong, Taiwan and Japan all cutting interest rates. In addition, central banks and governments, across the globe, injected further capital to provide stimulus to the banking system, and rescued more financial institutions.
Against this macroeconomic background, global government bonds ended the month in positive territory as the flight to quality rally continued. In direct contrast, corporate bonds fell during October (although not to the same extent as the previous month), as investors shunned all but the safest of securities. Continuing fears over both the solvency of a number of financial institutions and recessionary growth led to a further widening of credit spreads.
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