Fixed income markets

In 2016 there were two main drivers for capital market trends: the monetary authorities, which continued to leave their mark on the interest rate situation, and political factors such as Brexit, the election of Trump as the next US president and the departure of Italy’s Prime Minister Renzi after his proposals for political reform were rejected by the Italian voters.

Interest rate levels and returns on fixed income indices in EUR

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2015
HY1

2015
HY2

2015
FY

2016
HY1

2016
HY2

2016
FY

 

 

 

 

 

 

 

3-month euribor, end of period

-0.01%

-0.13%

-0.29%

-0.32%

10-year yields United States, end of period

2.35%

2.27%

1.47%

2.44%

10-year yields Germany, end of period

0.76%

0.63%

-0.13%

0.21%

 

 

 

 

 

 

Return iBoxx € Sovereigns Index

-1.4%

3.0%

1.6%

5.7%

-2.3%

3.3%

Return iBoxx € Non-Sovereigns Index

-1.0%

1.0%

0.0%

3.6%

-0.2%

3.4%

 

 

 

 

 

 

In Europe, the ECB decided, among other things, to cut its official interest rate and announced the extension of the bond purchase programme until December 2017. Following this announcement, 10-year German government bond yields quickly became positive, rising to 0.40%. By the end of the year they had fallen back to 0.20%, however.

Capital market rates fluctuated due to the Brexit vote in the United Kingdom, but soon stabilised when it became clear that the impact was not as serious as anticipated.

Because of Trump’s election victory, US interest rates in particular rose sharply and the interest rate differential with Europe widened significantly (2.35% at the end of 2016). Earlier monetary policy divergence had also resulted in an interest rate differential. While the ECB announced further stimulus measures, the Fed decided to raise its official interest rate by another 0.25%. This divergence and the political instability in Europe caused the euro to weaken further relative to the dollar in 2016. This depreciation is favourable for Europe’s export position and helps to import inflation.

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