Financial markets started 2022 a tad nervous. In particular, equity markets were not in a great shape. Whereas emerging markets still experienced modest losses (-0.5% in euro), the broad developed market index was sharply lower (-5.0% in euro). The reason is the fear that central banks (especially those of the U.S.) will raise policy rates faster to curb rising inflation. Oil prices ran up as much as 16% this month.
Shares
It was not only between regions that equities differed greatly; returns were also far apart in terms of sectors and style. Like last month, growth stocks performed relatively less well than value stocks. Higher oil prices caused energy companies to do relatively well. And so did financials, which benefited from rising interest rates. IT was again the main sector lagging in terms of returns.
Bonds
10-year interest rates in both the U.S. and Europe continued to rise. German10-year yields returned to positive territory for a long time after rising in January from 0.19% to +0.01%. Inflation expectations in Europe also edged up slightly further. The risk premium for less risky and more risky corporate bonds rose to 1.07% (+0.09%) and 4.18% (+0.45%) respectively, resulting in negative returns for the month.