Rates Fall Sharply as Virus Concerns Continue

 

Treasurys continue to rally, risk assets tumble as market shifts focus to “second wave” fears. Treasury yields and swap rates rallied sharply across the curve yesterday as fears around a second wave of US COVID-19 infections precipitated a re-rating of risk assets. The 10-year yield fell 9 basis points on the day, extending a rally that’s seen rates fall nearly 30 basis points below their recent highs at the long end of the curve. Equities also fell sharply lower, the S&P 500 and DJIA falling over 6% on the day after climbing to within 5% of all-time highs earlier this week. Though no new lockdown measures have been announced, economists worry about the potential impact they may have on economic activity if virus cases continue to grow exponentially. Adding to the shift in sentiment, virus-impacted data continues to take a toll on the market with US jobless claims for the week ending June 6th remaining elevated at 1.5 million.

 

 

Thursday’s global market sell-off on fears of a second COVID-19 wave saw a move to safe haven currencies. JPY and CHF rose to 1 & 3 month highs against the greenback while the pound’s recent strength and stability against the dollar ran out of steam. GBP ultimately tempered down to 1.2575 against the dollar while the UK continued to grapple with Brexit negotiations and COVID-19 fall-out. The Boris Johnson regime continues to express opposition to extending the Brexit transition period beyond the end of 2020, further exacerbated by a fourth round of Brexit negotiations with marginal progress. The continued uncertainty of whether British political brass will prevent a no-deal Brexit continues to cast a negative shadow with investors, in addition to the recent turmoil related to the pandemic.

 

 

Import and export prices gained in May. After falling in April and March, import and export prices rose 1% and 0.5% MoM. The figures released by the Labor Department fell for the past few months driven mainly by fuel imports plummeting after demand dried up. Prices also fell for corn, meat, cotton, and a number of other agricultural goods, which the US heavily exports. May’s rise can be attributed to shift in fuel and food prices, both rising after lockdowns eased globally.