Rates Fall as Coronavirus Death Toll Rises

 

Coronavirus continues to dominate headlines as death toll climbs to 170 and confirmed cases pass 7,700. The economic costs of the outbreak are beginning to tick higher as dozens of airlines cancel flights and the lunar holiday is extended in China. Economists estimate the outbreak could shave as much as 1% of China GDP growth in the first quarter, a number that could climb higher if the outbreak spreads. While equities climbed higher yesterday, Treasurys continued to receive a risk-off bid, pulling Treasury yields and swap rates lower by ~ 6 basis points. This morning, rates are lower once again, the 10-year Treasury yield falling to 1.57%.

 

 

FOMC leaves rates unchanged as expected, adding that the range is “appropriate to support sustained expansion.” While rates were left unchanged, the Fed did change their characterization of inflation in their statement, saying that inflation was “returning to” the committee’s 2% objective. The Fed’s continued intervention in the repo market was an area of focus during Jerome Powell’s press conference, though Powell pushed back on the idea that the intervention is QE.

 

 

Day ahead. The US Commerce Department released an estimate of fourth quarter GDP this morning, which is in-line with the 2.1% growth in the previous quarter. President Trump’s impeachment trial continues in the Senate as Democrats debate calling witnesses to the stand. The Fed’s Balance Sheet numbers are released this afternoon.