Bond investors are looking for orientation points this week in a fog of panic that’s paralyzed parts of the world’s biggest and safest debt market.
Roughly $340 billion of Treasuries are on the way. That burst of supply could help a market starved of high-quality securities if it lands in less chaotic conditions. But there’s hardly any guarantee of that: The 10-year yield, a benchmark for global borrowing costs, swung in a range of more than 50 basis points in each of the past three weeks, a phenomenon that hasn’t been seen in the past two decades. Rates-market volatility is not far below a post-2009 high reached this month, and illiquidity still reigns, as seen in shrinking futures open interest.
The days ahead are unlikely to bring much in the way of settling news. Yields pitched lower Friday as more governors ordered residents to stay home to curb the spread of the coronavirus. And investors are also braced for data that will help them piece together the economic fallout.
Forecasts for the coming quarters are alarming — Goldman Sachs Group Inc. sees a “sudden stop for the U. S. economy” that will cause an unprecedented 24% contraction in annualized growth next quarter. Federal Reserve Bank of St. Louis President James Bullard, meanwhile, predicted the U.S. unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in gross domestic product.