Global preparations for a Corona pandemic have resulted in the proverbial market crash, with equities globally in correction territory and bond yields plunging to multi-year or even all-time lows as recession risks are on the rise. For the latest on the virus we refer to the wire reports , but all in all it’s clear that markets see the panic as a major demand shock, massively overshadowing the supply shock from shutdown production and supply chains. For the week US Treasury yields are down by 18-32bps across a bull-steepening curve as USD OIS increasingly price in Fed rate cuts as soon as the March meeting. In total three 25bps rate cuts are priced. And while Fed-speak isn’t giving the all-clear for a rate cut, we do want to point out that Chicago Fed chief Evans became the first FOMC member to hedge his bets on keeping policy unchanged, saying the bank cannot be complacent.

 

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