The Weekly Brief
Global Market Insights Strategy Team
Governments around the world have announced large stimulus packages in an effort to limit the economic fallout from COVID-19.
Ballooning government balance sheets will require huge government bond issuance going forward, and yet sovereign yields remain close to all-time lows. Why? Central banks have ramped up asset purchase programmes to try to ensure that the incoming wave of supply is well absorbed by the market. The European Central Bank (ECB) now plans to purchase over EUR 1 trillion of assets in 2020, while the Bank of England will also make GBP 200 billion of purchases. The Federal Reserve has gone one step further, by making an unlimited commitment to buy US Treasuries. Long-dated government bond yields may not have much more room to fall further in the near-term, but the central banks are working hard to avoid a spike in yields that would make government borrowing much more costly.