This is a crucial week for European bond markets, with the EU called upon to find a solution for a recovery fund as well as other solutions to help countries endure this acute economic crisis caused by the coronavirus. Overall, there is uncertainty about bonds markets with the potential for the number of companies struggling to repay their debts to grow sharply over the next few months.
A cash crisis in some sectors, such as airlines and restaurants, is almost inevitable due to the lack of income in March and April and it will be crucial to see if there are any effects on bond markets as a result. Investors will be more cautious before lending money to the companies in the worst affected sectors.
Photo by Francois Van.
These extreme times present a scenario in which on the one hand central banks are injecting liquidity to markets, while on the other hand, the increased risk to lending would normally see interest rates rise. So far investors have kept their faith in central banks, both in the EU and in the US, but it will be crucial that markets retain their confidence in the next few weeks.
