Financial market developments

• Government bond prices continued to fall during the second quarter, prompted mainly by growing concern about inflationary pressures and uncertainties over the future level of short-term interest rates. In many markets, prices returned to the levels prevailing before last year’s strong rally.
• The volume of borrowing in the international bond markets was significantly lower than in the first quarter, reflecting borrowers’ reluctance to issue and investors’ unwillingness to commit funds while markets remained turbulent.
• In the US, Japanese and most European markets, yield curves steepened as investors—taking a defensive view—shifted their interest away from long maturities. Most of the limited number of new bond issues were concentrated at maturities of five years or less.
• Rising real bond yields led to price falls in many equity markets. New equity issues were therefore more difficult, though this did not stop a large number of companies coming to the market in the United Kingdom.

Financial market developments