Daily Archives: 22nd March 2020

22nd March 2020

🗡️ Catching a falling knife

iTraxx Main

118bp, unchanged

iTraxx X-Over

685bp, +8bp

🇩🇪 10 Yr Bund

-0.34%, -10bp

iBoxx Corp IG

B+249bp, +2bp

iBoxx Corp HY

B+882bp, unchanged

🇺🇸 10 Yr US T-Bond

0.88%, -24bp

🇬🇧 FTSE 100

6049.62, (-1.73%)
🇩🇪 DAX

12489.46, (-0.04%)
🇺🇸 S&P 500

3152.05, (-0.65%)

UK goes for broke, others to follow…

In a last throw of the dice, Britain has closed for business. Encouragingly and correctly, the fiscal response has been immense, unprecedented in its size and nature and broken many a financial taboo. A volcanic-like explosion of liquidity and support all being necessary as the country (and world) heads into hibernation mode.

The economic impact of the pandemic will see the negative slope on the way down. It looks like we are going to see atrocious double-digit numbers for GDP in Q1 and Q2 (deep recession), while the upward slope will go a long way to correct it. Once we see the evidence that the latter can happen (development of a successful vaccine, for example) we will see the markets fly, and it could be a huge rally. The numerous fiscal largesses will make sure of that.

It is going to be some correction. After all, just look at where we are year to date: FTSE -31%, Dax -33%, S&P -29%, IG credit -6.6%, HY -18.8% and AT1 -23.3%.

That’s something to look forward to. For now, stay defensive – although the ability to trade at reasonable prices has been severely curtailed. Given the huge levels of uncertainty ahead, there is little reason to get involved. Why would you?

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