UK & Global Sovereigns

10-year government bonds UK Gilts (GBP), German Bunds (EUR), and US T-bonds (USD)

Sovereign CDS spreads 5-year sovereign CDS spreads return to pre COVID-19 levels

Sovereigns Europe - Market observation per 31 March 2021 -

Sovereign bond yields rose from February based on US stimulus expectations

  • From early February ’21, global government bond yields increased on the back of expectations of new US fiscal stimulus. Prospects of a US support package boosted investors’ expectations of a fast economic recovery globally.
  • UK and European government bonds mirror development of US sovereign borrowing costs. Consequently, UK Gilt yields reach the highest levels since June 2019, while Germany Bund yields reach the highest levels since January 2020.
  • From late February, European yields declined following the European Central Bank’s statement about the close monitoring of rising borrowing costs.
  • The gap between UK, and US and German 10-year yields has widened to levels last observed in February 2020, before the COVID pandemic. The gap between UK peer 10-year yields is 1.1% and 0.9% for Germany and the US, respectively.
  • UK GDP fell by 2.9% in January, outperforming forecasts but still leaving the UK’s GDP approximately 10% below Q4 2019 levels.

The costs of insuring exposure to debt issued by global sovereigns stabilizes further in Q1 ‘21

  • The UK and US credit default swaps (CDS) fell sharply since January ’21, reaching levels lower than the pre COVID-19 market.
  • Comparatively, German CDS spreads remain just above pre COVID-19 levels.