Financial markets are not only driven by economic data. They are also constantly pricing uncertainty. This is where the idea of the global risk premium comes in. In simple terms, it is the extra return investors expect for taking on risk in an uncertain world. When uncertainty rises, that required return increases, and the impact is often felt across equities, bonds, currencies and commodities at the same time.
Nominal interest rates often dominate financial headlines. Investors frequently hear about central bank policy rates or the yield on government bonds such as the 10-year US Treasury. However, in financial markets it is often the real interest rate that matters more.
Nominal interest rates often dominate financial headlines. Investors frequently hear about the level of central bank policy rates or the yield on government bonds such as the 10-year US Treasury. However, in financial markets it is often the real interest rate that matters more.
Government debt has become one of the most closely watched macro indicators in global markets. After the Global Financial Crisis, the pandemic and a period of elevated fiscal spending, many economies are now carrying significantly larger public debt loads than they did a decade ago.
At first glance, strong economic data should be positive for financial markets. It suggests that the economy is growing, consumers are spending, businesses are expanding, and employment remains stable. In isolation, that is the kind of environment investors typically welcome. Yet markets do not always respond in the way many would expect. At times, strong data can lead to falling equity prices and rising volatility.
