Excerpts: “Markets Infected by Coronavirus”

• Bonds are comfortably below 2 percent and the 10-year Treasury yield is hovering around 1.3 percent. Unlikely as it may seem, technical analysis now indicates a target yield on the 30-year bond at 1 percent and the 10-year note at 0.25 percent. Stocks are nearing correction territory, with more downside likely.
• At the same time that long Treasury yields are making new historic lows, credit spreads, while widening, remain relatively tight. This does not make any sense given the fundamental backdrop which indicate that defaults will rise significantly, particularly in energy, airlines, retailing, and hospitality.
• All in all, these are “interesting times” as the old Chinese curse goes. Going into February, my overriding concern was that the Federal Reserve, by purchasing $60 billion in Treasury bills per month, was lifting asset values across the board in the fourth quarter and into the first. This form of quantitative easing was causing what I called the everything bubble, because virtually every sector was up over the past year.
• Now apparently the everything bubble for risk assets is in danger of deflating. The coronavirus is showing us the unpredictable path that an exogenous force can play in interrupting an economy that is already exhibiting many late-cycle symptoms. And it is far from over. The Center for Disease Control (CDC) has been firm in its warnings, as Dr. Nancy Messonnier of the CDC urged, “We are asking the American public to prepare for the expectation that this might be bad.”

Source: Guggenheim Partners