Tuesday, January 28, 2020 |
||||||||
|---|---|---|---|---|---|---|---|---|
| MANAGING DIRECTOR: Scott Carrithers PORTFOLIO SALES AND SERVICE: Steve Panknin • George Morris • Jeff Goble • Chris Thompson • Sean Doherty Kevin Doyle • Lonnie Harris • Mark Tranckino • Robert Schuyler • Tom Toburen • Josh Kiefer Nicole Burczyk • Kelley Frye • Natalie Regan • Aaron Stoffer • Chuck Honeywell |
| US Treasury Market | |||||||||||
| Date | 1 mo | 3 mo | 6 mo | 1 yr | 2 yr | 3 yr | 5 yr | 7 yr | 10 yr | 20 yr | 30 yr |
| 01/21/20 | 1.52 | 1.56 | 1.57 | 1.54 | 1.53 | 1.53 | 1.57 | 1.69 | 1.78 | 2.10 | 2.23 |
| 01/22/20 | 1.52 | 1.55 | 1.56 | 1.55 | 1.53 | 1.52 | 1.57 | 1.68 | 1.77 | 2.07 | 2.22 |
| 01/23/20 | 1.55 | 1.55 | 1.56 | 1.55 | 1.51 | 1.51 | 1.55 | 1.65 | 1.74 | 2.03 | 2.18 |
| 01/24/20 | 1.54 | 1.54 | 1.55 | 1.55 | 1.49 | 1.48 | 1.51 | 1.61 | 1.70 | 2.00 | 2.14 |
| 01/27/20 | 1.53 | 1.55 | 1.57 | 1.53 | 1.44 | 1.41 | 1.44 | 1.52 | 1.61 | 1.91 | 2.05 |
Source: U.S. Department of the Treasury, as of 01/27/2020
When America Sneezes … but What About China?
Fears that China has failed to contain the pneumonia-like virus are rattling global markets, as the coronavirus has unleashed a contagion of uncertainty. No one knows the eventual impact of this deadly virus, but we do know China has become an even bigger driver of global growth.
Back in 2003, when China was unable to contain the SARS virus, China’s GDP was an insignificant 4% of global growth. Now China accounts for almost 20% of world GDP. As such, China’s larger role in the global economy will more likely increase the spillover effects of the illness in Asia and around the world. Although uncertainty about the severity and duration of the outbreak makes it impossible to form a definitive judgment about the economic impact, financial markets seem to be fearing the worst.
U.S. equity indices have lost their sizeable year-to-date gains, while equities across Asia and Europe are mostly trading in negative territory. U.S. Treasury yields have dropped to the lowest levels in 3 months and other “safe haven” assets - the U.S. dollar, the Swiss Franc, the Japanese yen, and gold – are all up in value.
Concerns related to the deadly outbreak are challenging the “reflation” theme generally expected for global growth in 2020. The International Monetary Fund recently predicted the world economy would expand at a slightly faster pace this year, supported by U.S. trade agreements with China, Mexico and Canada.
More optimistically, the contagion might be contained and the economies most affected might recover more quickly. According to Rob Subbaraman, head of global macro research at Nomura Holdings Inc., “Asia has room for monetary and fiscal policy responses, and these virus shocks tend to be short-lived and cause a V-shaped trajectory in economic activity, as there is a lot of pent-up activity once the virus peaks.”
Relative Strength of 10-year USTNs
Source: Bloomberg L.P.
When America Sneezes … but What About China?
Fears that China has failed to contain the pneumonia-like virus are rattling global markets, as the coronavirus has unleashed a contagion of uncertainty. No one knows the eventual impact of this deadly virus, but we do know China has become an even bigger driver of global growth.
Back in 2003, when China was unable to contain the SARS virus, China’s GDP was an insignificant 4% of global growth. Now China accounts for almost 20% of world GDP. As such, China’s larger role in the global economy will more likely increase the spillover effects of the illness in Asia and around the world. Although uncertainty about the severity and duration of the outbreak makes it impossible to form a definitive judgment about the economic impact, financial markets seem to be fearing the worst.
U.S. equity indices have lost their sizeable year-to-date gains, while equities across Asia and Europe are mostly trading in negative territory. U.S. Treasury yields have dropped to the lowest levels in 3 months and other “safe haven” assets - the U.S. dollar, the Swiss Franc, the Japanese yen, and gold – are all up in value.
Concerns related to the deadly outbreak are challenging the “reflation” theme generally expected for global growth in 2020. The International Monetary Fund recently predicted the world economy would expand at a slightly faster pace this year, supported by U.S. trade agreements with China, Mexico and Canada.
More optimistically, the contagion might be contained and the economies most affected might recover more quickly. According to Rob Subbaraman, head of global macro research at Nomura Holdings Inc., “Asia has room for monetary and fiscal policy responses, and these virus shocks tend to be short-lived and cause a V-shaped trajectory in economic activity, as there is a lot of pent-up activity once the virus peaks.”
Relative Strength of 10-year USTNs
Source: Bloomberg L.P.
This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.
•Not FDIC Insured •No Bank Guarantee •May Lose Value