The total volume of negative-yielding bonds is fast approaching the record set in early 2019. This will be a determining factor for the markets in the coming months.
The rise in negative-yielding bonds receives little attention these days as investors focus on Brexit and the US presidential elections, as the US presidential elections are likely to be decided in court. This is due to the fact that Trump will contest the result if he loses. So we’re up for a challenging couple of weeks.
Recovery
Believe it or not, the resurgence of negative yields can be the trigger for a rally in stocks towards the end of the year. After all, the money goes where the yield is. Meanwhile, we need to keep an eye on long-term interest rates in the US. After all, 30-year Treasury bond yields are rising again. That can give value and cyclical stocks a boost.
When the dust settles, we will realise that monetary policy will continue to determine the evolution of the stock markets. Paradoxically, a weaker economy with a lot of stimulus is better for investors than a strong economy with little stimulus. In the longer term, it makes less of a difference who wins the US President. After all, both Biden and Trump will pursue strongly stimulatory policies.