Monthly Investment Review for December 2020

  • 17 January 2021
  • 5 mins reading time


US equity rises were helped by approval of the long-anticipated $900 billion stimulus package. Also, economic data were generally positive when taken in the context of the Covid-induced economic weakness earlier in the year. Despite this modest positive, the Federal Reserve (“Fed” US equivalent of the Bank of England) repeated that it does not see inflation returning any time soon, and that the Fed will persist with financial support. The financial and technology sectors were among the strongest performers, although all sectors made gains.

UK equities have lagged their American and Continental European peers, but they got a boost from a Brexit no-deal being avoided. Gains were also registered across much of the rest of Europe after the European Central Bank added a further €500 billion to its quantitative easing programme (electronically “printing” new cash to inject into the financial system to support inflation and borrowing).

Elsewhere, optimism over the rollout of Covid-19 vaccines boosted sentiment. At the same time, the movement of money out of perceived “havens”, such as the US dollar, supported gains in regions such as Asia, by effectively reducing the value of dollar-denominated debt that they hold.


The optimism led to money being moved out of lower-risk rated bonds. That sent the demand for and price of benchmark 10-year Treasuries (US government bonds) down and their yields higher (the price and yield of a bond always move in opposite directions).

The equivalent government bonds in the UK and across Europe took a different direction. The demand for UK bonds increased as more stringent lockdown restrictions appeared likely to stymie economic recovery for the time being. And the European Central Bank’s increased quantitative easing programme pushed demand for European government bond prices up.

The extra financial support from governments and central banks helped to underscore the ability of companies to maintain their debt obligations. This effective reduction in risk that is associated with corporate bonds made them more attractive, pushing the demand for them up and taking their prices along as well.

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