Bond Yields at All Time Lows on Worldwide Flight to Safety

The coronavirus is causing massive market volatility as the appetite for risky assets is plummeting. The 10 year T is at an all time low closing today at 1.32%. The 30 year is at 1.80%. This is in comparison to 30 day LIBOR at 1.61% (29.9 years of “curve” is 19 bps). This shows a market that is anticipating very low economic growth and inflation for the near future. The market may or may not be overreacting.  The absence of hard data and rampant speculation compounds to create massive uncertainty. The coming months will be telltale as the effects start to be measured in hard data and the spread rate becomes more apparent. We are seeing lenders institute fixed rate floors as risk spreads often widen with indexes plummeting. Some macroeconomic trends to be aware of are: (1) Coronavirus will have an immediate effect on the hospitality sector; (2) The 2020 Tokyo Olympics may be cancelled at a cost of $25B if there is no containment by May; (3) The Chinese economy is slowing and Q1 results of U.S. companies doing business in China will be affected; (4) 2020 GDP growth is expected to be 2.0%. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners