There was an explosion in financial markets at the start of March; major economies literally shut up shop due to Covid 19 fears.  The emergency services arrived swiftly (albeit day by day it didn’t feel like it). The Fed and the Bank of England cut rates twice, the ECB announced bond purchases; generally there has been a spirit of “whatever it takes”. Fiscal support, everywhere, has been announced too. Investors are now picking their way through the rubble and seeing what is left, what can be salvaged and what has changed forever.

Bond investment covers all types of fixed income markets but readers will now know that that fear of dislocation in government bond markets has subsided. Central banks are hoovering up bonds and the US and UK yield curves are behaving accordingly. Nuanced gestures in Europe mean that the ECB is able to buy more Italian bonds than should prove necessary. Central bankers wearing their emergency services high viz jackets have done their job – and they have sorted the plumbing too. The mad rush to buy $ has subsided as the $ trade weighted index has reversed half of its crisis jump. Like all disaster sites, however, some areas remain higher risk.

Much of the fiscal support has been aimed at workers rather than corporates; that comes as no surprise as the economic impact hit the US employment market with 3.3million making initial unemployment claims. Earlier in the week it was the partisan politics in the Senate that delayed the US fiscal plan and equity and credit markets disliked the impasse; equity markets have marched materially higher since but the breakdown of who gets what is only starting to be assessed but credit markets are already sensing obvious winners and losers.

It will come as no surprise that companies in the airline, hotel and pub sectors are at the sharp end and their debt has yet to establish active trading valuations in many cases. However, in the winning corner are the largest credits and banks; the Intel, HSBC, MacDonald’s who have lead credit markets to the largest ever weekly supply of $ bonds with more than $100bn of new debt issued. Top quality investment grade credits have priced at a discount and capture generous spreads that reward for more than reasonable expectations of ratings downgrades and defaults.

The assessment of value, however, is ultimately an assessment of the timeline of this crisis. Spain’s death toll pushes higher, the human tragedy in Italy is real and the UK is seeing its leaders infected. We are all saddened by the human cost. Looking forward, the impact on the US economy still remains very uncertain. Our expectation is that all major economies will suffer dramatic GDP falls in Q2 but if the economic effects of the crisis start to be measured in quarters not months the relief in credit markets partially seen this week will become ever more palpable. 

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