Fixed income markets

For the corporate bond markets, 2017 was another strong year, although the credit spreads did occasionally widen slightly. Yields and credit spreads fell further, which generated both carry and price gains. The strong macro-economic situation and central banks continuing their extraordinary abundant monetary policy resulted in solid fundamentals for companies and very few defaults on the corporate bond markets. Another interesting development for the fixed income market in 2017 was the clear broadening of issuer type and of geography in the impact bond market. The issuance of Green bonds for example grew well over 45% to reach around 120 billion euro this year. This development clearly reflects the growing interest amongst investors for impact investing.

Interest rate levels and returns on fixed income indices in EUR

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2017
HY1

2017
HY2

2017
FY

2016
HY1

2016
HY2

2016
FY

 

 

 

 

 

 

 

3-month euribor, end of period

-0.33%

-0.33%

-0.32%

-0.29%

10-year yields United States, end of period

2.41%

2.31%

2.44%

1.47%

10-year yields Germany, end of period

0.42%

0.47%

0.21%

-0.13%

 

 

 

 

 

 

 

Return iBoxx Euro Sovereigns Index

0.1%

1.2%

-1.1%

3.3%

-2.3%

5.7%

Return iBoxx Euro Non-Sovereigns Index

1.4%

1.5%

-0.1%

3.4%

-0.2%

3.6%

 

 

 

 

 

 

 

In the government bond markets, sovereign bond yields did not register a distinct upward trend. Yields are above the lows reached in 2016; but, on balance changed little in 2017. There were periods of sharp yield rises, however, as investors became worried about a possible normalisation of monetary policies. This applied in particular to German Bund yields in Europe. In the US, two-year Treasury yields rose steadily in reaction to the three interest rate hikes by the Federal Reserve. This monetary policy development was underpinned by a steady rise of US interest rate expectations, as projections point at a structural widening of the US budget deficit under the Trump administration.

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