October 2021: good month for equities, but not for bonds

October 2021 was a particularly good month for European and US equity markets, but less so for Asian equities and emerging markets. Meanwhile, long-term interest rates continued to rise.

While equity markets enjoyed the tailwinds of a pick-up in economic growth and, in particular, higher than expected corporate earnings in October (especially in Europe and the US), fears of rising inflationary pressure and higher interest rates put a damper on bond market sentiment. As long-term interest rates went up, government bond returns turned negative, as in fact has been the case for most of 2021 (except for the summer months). Yields on 10-year Dutch government bonds even ended October above 0%, the first positive rate at month-end for 2.5 years. Higher interest rates also depressed corporate bond returns. This was not offset by narrower corporate bond spreads, which remained virtually unchanged. On balance, both government bonds and corporate bonds in Europe – and, within the latter category, both investment grade and high yield bonds – achieved negative yields of approx. 0.6%.