Credit markets ‘largely resilient’ despite coronavirus fears

Written by Adam Cadle

26/02/2020

Credit markets have been “largely resilient” since January, despite coranavirus fears, Charlene Malik of TwentyFour Asset Management’s portfolio management team has said.

Malik said “strong technical demand”, driven by “huge inflows for bond funds and the wall of cash sitting on the sidelines” has helped the credit markets.

“There has been a rush to safety as investors seek protection and as such US Treasuries,, the ultimate safe haven for many investors, have seen a significant rally,” she added.

“The bellwether 10-year US Treasury closed on Friday at a yield of 1.47%, but has since reached all-time lows and sits at 1.35% at the time of writing. This is a significant move from the wides at the start of the year of 1.9%, breaking through all resistance levels. The markets has also increased its expectation of interest rate cuts from the Federal Reserve, with investors now pricing in two 25bp cuts by September.”

Malik added the longer and larger the spread of the virus, the less likely a V-shaped recovery in growth will happen, which much of the market has been expecting.

“A U-shaped recovery is now looking increasingly probable,” she stated.

“We initially thought that a re-escalation of trade wars was the most likely risk to markets in early 2020, but coronavirus has been the surprise driver. From a market standpoint, we would still advocate caution. Naturally there will be buying opportunities created but we feel investors are better rewarded to remain cautious in the short term until there is further clarity.”

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