Markets

(New York)

The bond market looks primed for a big correction, says a top asset manager. Bonds have been surging in price as yields fall because of fears over coronavirus, but they seem likely to have a sharp pullback once the news cycle focusing on the virus moves on. That is the argument coming out of asset manager WisdomTree. According to the firm’s head of Fixed Income Strategy, if we have a sharp “V” shaped recovery, then bonds might see yields jump sharply (and prices fall sharply).


FINSUM: WisdomTree made one other excellent point that is not as obvious. US companies are starting to seek alternative suppliers away from China. As this happens, there is likely to be a transitory pickup in inflation since prices are probably going to be higher from suppliers outside of China. Accordingly, bond markets might also react sharply to a rise in inflation.

(New York)

Yields have fallen precipitously of late. Ten-years have been touching around the 1.5% mark, and now another big threshold has been crossed—30-years have fallen below 2%. The latest moved downward was propelled by Apple’s announcement about coronavirus being likely to make it miss revenue estimates. The bigger question is about how investors should react. Bond prices are again enormously rich, and worse, there is little dependable yield.


FINSUM: This seems like a post-crisis repeat all over again. With yields so low, it feels like the market has returned to “TINA” (there is no alternative to stocks).

(Beijing)

It is often hard to get a handle on how the Chinese economy is doing. The country’s government controls information very tightly, which makes the whole nation a black box. However, with coronavirus fears in full flourish there is some additional insight available, and it is worrying. Factories across the country have been shut as part of an effort to contain the disease, and even tech workers are working remotely. All over the country, from Beijing to Shanghai, to industrial provinces, workers are not reporting to factories (following government advice to stay home). Even today, as some parts of the country were supposed to return to work, many are not.


FINSUM: The Chinese economy seems to have completely stopped. It is hard to imagine there will not be a significant recession this quarter in China, which could reverberate all over the world.

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