Daily Market Color

Yields Across the Curve Continue to Fall to Record Lows Amid Virus Concerns


The coronavirus continues to push US Treasury yields down. Nearly half of the US companies located in China forecast substantial revenue decreases this year if usual business practices do not resume by April. Moody’s analysts expect the virus to reduce China’s annual GDP by 1% down to 5.4%. Companies like Microsoft, Marriott, Nestle, and Lufthansa are at the crux of the crisis. These global fears are exacerbated by the identification of the first virus case in the US where the person has no ties to an existing outbreak. President Donald Trump has appointed Vice President Pence to head the US coronavirus response, while promising investments of $2.5 billion into coronavirus research and preventative measures. The 10-year Treasury yield is currently near 1.271%, down 0.075% on the day and 0.25% so far this week.



Markets are pricing a high likelihood of Fed rate cuts this year. Fed funds futures are now pricing a 90% chance of a Fed rate cut in April. Easing policy may alleviate financial burdens on companies facing disruptions, but the effectiveness of resolving immediate supply chain issues due to quarantines and business shutdowns remains uncertain. The central banks of Hong Kong, China, and Malaysia have already began easing monetary policies in an effort to jumpstart their economies. The German central bank is considering halting the country’s debt brake to encourage more borrowing.



Day ahead. US GDP numbers for Q4 were in line with expectations at 2.1%. US jobless claims came in slightly higher than expected at 219,000 from 210,000 last week. US pending home sales numbers for January will be released later this morning with economists forecasting a 2% increase from the previous month. Yesterday’s new home sales numbers showed economic strength at 764,000. Chicago Fed President Charles Evans will speak on monetary policy and the economic outlook.


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