With a new year, comes new opportunities. As we approach the end of the first quarter of 2021, we checked in with Jens Furkert, Head of Bond Trading at EUWAX AG, LuxXPrime’s Prime Liquidity Provider, to learn more about what 2021 has in store for bond trading. In this short interview, the market expert highlights rising yields, the fear of inflation and illustrates just how interlinked markets are.
How would you describe the start of the 2021 trading year?
It was a very challenging start, just like the end of 2020 was challenging. We have seen a sharp increase in yields, especially in the US market. That’s also one of the reason why investors in the European bond markets are a bit nervous about inflation expectations. We have also seen some special events with an impact on the credit market, for example corporate news from bond issuers like K+S, thyssenkrupp or Grenke.
What is the outlook for the coming months, any new trends on the bond trading horizon?
The development of the COVID-19 pandemic and the possibility of further lockdowns and restrictions will continue to have a high impact on the markets. US President John Biden’s $1.9 trillion rescue plan is also considered as a possible starting point for an increasing inflation. Many US bond market investors seem to be quite afraid of this scenario at the moment. Both in the US and in Europe, central bank policy remains a strong influence on the markets.
What are the main aspects that are likely to shape market trends in the coming months?
Investors in all asset classes will keep a close eye on the development of yields. Many investors think that in Europe, we will still have negative or very low yields even for bonds with long maturity. However, we could see a further increase in US yields. The result could be that we would see shaky Emerging Markets and increasing volatility in US corporate bonds. At the moment, the markets in Europe are not very volatile. The credit markets in particular are stable, with a lower level of credit spreads than in the first and second quarter of 2020. However, if yields rise further, we will see an increase in volatility here as well. In this respect, I would like to emphasize that investors can continue to rely on stable trading on LuxXPrime, with prices in line with the market.