What explains investors’ enthusiasm for risky assets?

EVEN IN NORMAL times, there is an element of drama to the markets. The oil price may spike or slump in reaction to a geopolitical wobble; bond yields may leap on strong jobs figures; and shareholders may pump up a stock that posted juicy profits. But 2020 has taken the drama to an extreme (see chart 1). The equity sell-off in March was unmatched in its swiftness: stocks lost 30% of their value in a month. The yield on ten-year American Treasuries, the most important asset worldwide, fell by half between January and the middle of March and then by half again in a matter of days, before seizing up and yo-yoing. The contract for imminently delivered barrels of American oil briefly went negative. Over the course of 2020 timber prices have fallen by half, doubled, doubled again, fallen by half once more and then doubled again (overall, they have doubled in 2020).

If the plunge in asset prices as countries locked down terrified asset managers, then recovery—led by a fierce…

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