January turned to be full of events that may have a long-term impact on the global bond market. Among them, there were the announcement made by the ECB about a new programme of quantitative easing (QE), the depreciation of key interest rates performed by the regulators of several developed countries, the cut of Russia credit rating.

In the segment of High-Grade corporate bonds growth was noticed, following the growth of US treasuries and Bunds, and a corresponding decline of yield. Finally, the ECB outlined features of its new stimulating programme that includes the repurchase of government and corporate bonds along with accompanying injection of liquidity into the economy of the euro zone. The size of the programme exceeded the market expectations and resulted in the decrease of yield of 10-year Bunds, reaching its historical minimum of 0.3%. The yield of US treasuries in January also decreased despite of the announced potential enhancement of key interest rates by the US regulator in the middle of 2015. The main reason of this dynamics in the market is expectations of low-level inflation and a general tendency of the regulators of the developed countries towards easing of interest rates.

The segment of High Yield corporate bonds showed a moderate growth at the background of an insignificant decline of credit risk premium. The best dynamics was showed by the bonds of the companies of the developed countries that operate in the sectors that are not connected with oil extraction and metals. In the market of government bonds of the emerging countries, the price dynamics, in general, coincided with the dynamics in the global market of corporate bonds and was determined by the same factors. The segment of Russian corporate Eurobonds remained on the level of December, despite of the fall-down of quotation of rouble and oil, the cut of Russia credit rating, as well as the rhetoric of new sanctions from the EU and the USA, indicating that main negative has already been taken into account in current prices.

In the medium-term, we expect that the tendencies of last month will be retained. The segment of high reliable corporate bonds will remain sensitive towards the dynamics of US treasuries and Bunds that are, in turn, influenced by the expectations of inflation; the segment of high yield corporate bonds keeps the dynamics of the stock market. The Russia Eurobonds, most probably, will remain on the current level until the moment when oil prices are stabilized and geopolitical risks are reduced.

In the global stock market the biggest surprise in January was multidirectional dynamics of the US and European stock markets. At month-end the European index EuroStoxx 600 showed growth by 7.1% while S&P 500 decreased by 3.1%.

In the second half of the month, the European stock markets started to reduce the gap between them and the US market that occurred last year. Within the whole month, in the stock market players’ attention was drawn to the events of the second half of the month, namely, the ECB meeting. Anticipating finally the launch of QE by the ECB, investors started to buy out European stocks. The size of the programme turned to be another surprise, especially after rumours spread by the unknown representatives in the market one day before the meeting took place. The early elections in Greece at which solid victory was achieved by the radical left wing party Syriza did not influence the European stock market, as the majority of investors expected that after the Greek negotiations with the Trio agreements on further debt servicing would be anyway achieved.

The US markets showed weak dynamics. No matter how strange it may sound but at the general background US stock indexes were among the minority that concluded the month in minus. The main reason of US markets lagging behind was weak reporting of companies in Q4 of 2014. In fact, within the period of reporting season a rare company showed profit higher than the expectations of market members were. In the market of current high prices this, in general, disappointed investors. At the moment, less than the half of issuers of index S&P 500 did the reports, thus not allowing to make final conclusions, however, the bigger part of “important” companies have already announced their results.

The markets of emerging countries showed an uncertain growth of quotation, that at the moment resembles more the recovery after the fall down in December rather than the formation of clear-cut increasing trend. The markets of Asia looked better at the background of good corporate reports of the local companies, as well as stabilization of Asian region currencies exchange rates. The markets of Latin America looked significantly worse, having lost within the month about 5%, at the background of low oil price and cheap metals, as well as worsening corporate reputation of Brasilia (in regards with the scandal around Petrobras).

In the medium-term, we expect the tendencies of last month to remain. As before, investors will continue to keep a close look at the situation in the commodity markets, as well as to follow the monetary measures of the largest countries.

The funds’ performance results as at 31 January 2015 can be found at ABLV Bank home page in the section “ABLV Mutual Funds”.