News of highly effective vaccines, further US federal fiscal support and a Brexit agreement helped to boost investors’ risk appetite.
Interest rate increases over the quarter were concentrated in longer maturities as central banks continue to anchor short rates at very low levels.
Most developed markets posted strong returns in the quarter, despite spikes in infection rates and tightened restrictions.
While the pace of recovery is expected to slow as a consequence of further COVID-19 outbreaks and the resulting government restriction measures, the impact on economic growth is not expected to be as extreme as it was in 2020.
Financial markets are not showing significant signs of distress following the surge in virus infections, likely owing to the early deployment of vaccines that allows investors to look past current concerns.
Policy makers will need to strike a delicate balance between short-term needs and the longer-term impacts of the toll the pandemic has taken on country finances.