Risk appetite turned into risk aversion amid rising infection rates in October

The rise in registered coronavirus cases continued into October. This prompted lower risk appetite to return to the financial markets after MSCI ACWI touched an all-time high in mid-October.

MSCI ACWI was down by 2.5% in local currencies and 1.8% in DKK. The negative performance was driven by developed markets headed by the European markets. MSCI EM rose, however, by 1.5% in October, despite USD strengthening.

Credit spreads (i.e. the yield pick-up from investing in a corporate bond relative to a government bond) of European corporate bonds went up in the second half of October, but the month ended at largely unchanged levels. Credit spreads of investment grade bonds dropped by 2 basis points, while credit spreads of high-yield bonds increased by 3 basis points in October, prompting an excess return of 0.3% on investment grade bonds relative to comparable government bonds. High-yield bonds generated a return in line with comparable government bonds. The Danish 10Y government bond yield fell by 10 basis points to -0.5% in October.  

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