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Published on Monday, August 9, 2021

Global | Why are debt yields falling?

Financial markets began the year on a positive note. The progress made in vaccinations, central bank support and the fiscal stimulus programs planned for Europe and the US, helped drive expectations of an economic recovery.

Key points

  • Key points:
  • The major stock markets have continued to rise, but the trend of big rises in debt yield, seen up to May, has since reversed.
  • One factor that could explain part of the drop in yields is the reduction in inflationary expectations in the debt market, as the idea that the spike in prices is only temporary begins to gain strength.
  • Another factor could be the fears of a slowdown in growth, either because the cycle has peaked or due to the risk of the Delta variant.
  • Neither should we rule out the compression effect on yields resulting from the Fed's bond purchase program amid lower debt issuance volumes.
  • In addition, the changes in Fed and European Central Bank (ECB) monetary policy strategy have also contributed, to some extent, through the implication of inflation targets somewhat above their previous levels and the suggestion of a slower rise in interest rates.

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