Rates Fall Across the Curve as Coronavirus Continues to Spread

 

Haven assets climb on coronavirus fears, rates falling sharply across a flattening yield curve. US Treasurys rose yet again yesterday, the 10-year yield falling 8 basis points to close at 1.61% after dipping as low as 1.57% during the session. The remarkable rally over the past few days has pulled rates down nearly 30 basis points from where they started the year, the spread between 2-year and 10-year rates also narrowing dramatically to 18 basis points. US equity markets also fell, the S&P 500 and Dow Jones Industrial Average extending losses to fall 1.57% on the day yesterday. This morning, Treasurys are giving back some of those gains, while equity futures point to a modestly higher open.

 

 

FOMC meeting begins today. Jerome Powell will speak at his regular press conference tomorrow afternoon after the conclusion of the two day meeting. While Fed Funds futures imply virtually no chance of a change to policy rates, the meeting comes at a time when market participants are looking for more clarity around the Fed’s repo market operations. Those repo market operations, which have increased the size of the Fed’s balance sheet by $200B, are controversial as many in the market have characterized the action as quantitative easing.

 

 

Day ahead. This morning, the US Commerce Department released information on December durable goods orders. After a 2% decrease in November, the report showed orders climbed 2.4% in the month of December (largely driven by defense spending). Later this morning, the consumer confidence index will be released. Forecasts call for the confidence index to climb to 127.8. Bank earnings will also continue in earnest- 26 different community and regional banks reporting Q4 results throughout the day.