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2nd March 2020

🗞️ The market expects!

MARKET CLOSE:
iTraxx Main

68.1bp, +4bp

iTraxx X-Over

308.9bp, +6.4bp

🇩🇪 10 Yr Bund

-0.63%, -3bp

iBoxx Corp IG

B+129bp, +3bp

iBoxx Corp HY

B+438bp, +0.7bp

🇺🇸 10 Yr US T-Bond

1.08%, -4bp

🇬🇧 FTSE 100

5563.74, (-5.25%)
🇩🇪 DAX

9815.97, (+1.90%)
🇺🇸 S&P 500

2626.65, (+1.89%)

Central banks to kitchen sink it…

We had the obligatory dead-cat-bounce but it came courtesy of an extremely volatile session. This is no time to get involved in terms of attempting to find that bottom. This Covid-19 story is still evolving. Wait. The economic consequences are already significant and potentially could be off the scale.

It is so tempting to think that the market reaction is overdone. It probably is in the short term. But we are not looking at a V-shaped recovery either. More like a crooked ‘U’ with a more slow decline where relief rallies are met with more selling – before we emerge with some kind of a turning point.

As for now, as the coronavirus outbreak in China started to take hold and gain in prominence, the 10-year benchmark Bund – just moderately better bid – saw the yield on it begin its descent lower to -0.35% (from around -0.20%). Back then, we suggested -0.70% was the likely next big stop.

Now it’s going to be more like -1.0% amid a coronavirus-pandemic and concerted central bank action in the only way they know/and can.

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