Graph of the Week: US 10y yields are at historic lows despite economic boosts

09th March 2020

For decades, returns from government bonds have been consistently falling. European and Japanese benchmarks, already in negative territory, reaching new lows, the ongoing coronavirus outbreak and the FED’s emergency interest rate cut of 0.5% (seen as policy mistake by some) have all fueled market anxiety and pushed the US 10y bond yields towards the 0.6% mark – its lowest level ever.

Market participants are in portfolio protection mode with stocks being sold off and havens such as government bonds and gold in strong demand. Even the blockbuster report that the US economy added 273k jobs in February (51k in hospitality and leisure sectors) and Trump’s $US7.8bn fiscal stimulus did not stop the fall in yields, suggesting that the market does not require a blanket approach but a targeted support of the most vulnerable sectors in order to overcome this short-term economic shock standing in the way of a generally strong and robust US economy.

The US banking sector is down by over 15% on the back of last week’s interest rate cut and there will likely be a similar outcome from the ECB this week. The energy sector is the worst performer this year, down by more then 25% and last week’s OPEC+ meeting which resulted in significant production cuts did not help oil prices and saw WTI falling to US$45 per barrel. However, despite the general mood, not every sector is underperforming this year. Utilities, Real Estate and IT sectors are outperforming so far this year.

Source: BlackBee, Bloomberg, March 2020

The world is in the largest commodity demand shock this century
Disruptions in economic activity in China are likely to spread to Europe, Middle East and US during the next 4-6 weeks on the back of the spread of the novel coronavirus. For oil and other energy products, the disruption in demand ultimately equals to a loss, while lower consumption of steel for example can be postponed to a future date. OPEC+ agreed to cut production to 1.5 million barrels per day, as the oil market trades c. 25% lower than January, before markets began to react to the virus. 

Storage is in high demand but storage has its limits and once breached, commodity prices could fall even lower. Gold, on the other hand, as a commodity has “immunity against the virus”, according to Goldman Sachs and is trading close to US$1,700 per ounce again.

Source: BlackBee, Forbes, CNBC, March 2020

Coronavirus cases reported in almost half of the world
The number of countries with reported cases of coronavirus has risen from 28 at the beginning of February to 93 at the beginning of March. The total number of cases breached 100k on Friday, with the number of deaths over 3.4k. Based on these figures, the percentage of deaths compared to recorded cases is 3.4% as at Friday. While the number of infections and deaths are rising, so is the number of people recovering from the virus. Statistics say that c.56k people have successfully been cleared of the virus since the outbreak and there are over 41k active cases.

The first case of community-infection in Ireland was reported in Cork on Thursday. The risk status of the virus in Ireland at the moment is low to moderate, but could change in the future. Some communities are cancelling or reorganising large gatherings of people in the hopes of curtailing the spread of the virus.

Source: BlackBee,,, March 2020

Financial Services sector prepares for workforce disruption in Central London
Last week, major banks in Canary Wharf tested their back-up sites outside London city due to the escalation of the Covid-19 virus outbreak. HSBC had to evacuate a part of its building due to a confirmed coronavirus case in one department. Goldman Sachs has been actively testing its backup trading operations in South London and JPMorgan Chase has been doing the same in Basingstoke.

Despite Brexit, London’s importance to global markets cannot be ignored. It is estimated that approx. 522,000 people, or 10% of the total workforce of the metropolis, works in the financial district, home to a $6.6 trillion-a-day foreign-exchange trading market, a massive derivatives clearing house and investment firms from around the world.

Source: BlackBee, Bloomberg, March 2020

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