Global bond markets were dominated in July by concerns over the severity of the global economic downturn and hopes that central banks front-loading interest rate hikes would mean a quicker end to the tightening cycle. A broad relief rally in global bonds reversed some of the YTD underperformance.
A shallow or severe recession − that is the question? Despite a softening of economic activity, most G7 central banks reaffirmed their inflation-fighting commitments in July as they implemented a series of aggressive rate rises. As a result, growth forecasts were again significantly downgraded, while the US GDP fell again in Q2, marking a ‘technical’ recession.
Consensus further slashed its G7 growth forecasts in July, as consumer demand and economic activity deteriorated. The main worry for investors concerned the severity of the global economic downturn, as central banks reiterated their desire to prioritize taming inflation over boosting growth. The Eurozone, US and Canada implemented large rate hikes in July.
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