Bond markets start to look beyond the apocalypse

G7 sovereign bond yields fell sharply in Q1, to all-time lows, as fixed income markets moved much faster than equity markets to discount a major economic shock, and possible recession, from the coronavirus contagion. Since early-March, however, government bond yields have recovered sharply and yield curves steepened, in response to the enormous scale of the fiscal and monetary stimulus unveiled by policy makers (with fiscal stimuli of 20% to 25% of GDP in some cases).

These recent moves suggest the bond market may be looking through the deep dislocation in economies in Q1 and Q2 to a rebound in economic growth later this year.

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