In recent months, the development in the financial markets has again shown that changes to the economic momentum play a more important role than the level of economic activity when it comes to risk premiums and return patterns.
As mentioned above, economic indicators have regained positive momentum as societies have been reopened, meaning that some of the recovery potential has already been realised, pushing leading indicators nearer to a peak. Credit spreads of global High Yield and Investment Grade bonds have tightened in recent months and are now closer yet to levels characteristic of periods with more normal external circumstances. This does of course limit future returns, but does not necessarily lie in the way of further progress if the positive momentum continues in the time ahead.
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