At such times investors sometimes start to focus on risks to which they had hitherto been attaching little significance. Investors have not, however, fled from risk indiscriminately on this occasion, at least to date. They have drawn distinctions between alternative classes of investment and different countries. Long-term sovereign yields of the core advanced countries have increased a little, but they remain low.
With compressed risk spreads, this means that borrowing costs for many private-sector borrowers remain very low. The spreads over German yields for European sovereigns have continued to fall. This suggests that actions by European policymakers have had more influence on European markets than actions by the US authorities. This is as one would expect, but it hasn’t always been the case in the past.