The coronavirus outbreak continues to put a stranglehold on the capital markets with a rise in safe haven asset buying as more investors add bonds to immunize their portfolios from a severe market downturn. This is causing the yield curve to invert once again as government-mandated measures are already being taken to contain the virus.
Per a Reuters report, “The death toll from the coronavirus outbreak in China has risen to more than 100 and the virus has spread to more than 10 countries, including France, Japan, and the United States. That has rattled world markets, fueling concerns about the impact on a world economy hit last year by a trade war between the United States and China.”
“Investors, in turn, have rushed into safe-haven U.S. Treasuries, with 10-year yields falling on Tuesday to 1.57%US10YT=RR, their lowest since early October, the report added. “The gap between yields on three-month notes and 10-year government bonds briefly fell to -0.015 basis points US3MT=RR US10YT=RR, its lowest since October, before returning to around 0.01 bps.”
2020 started the year with more steam from an extended bull rally, but the coronavirus is pumping the brakes on more gains.
“The movement in the curve is probably telling us we are seeing an increasing shift away from risk assets to safe assets, including Treasuries, and the entire curve is being pulled down,” said Philip Shaw, chief economist at Investec. “If the signs were to multiply, there could be a more severe impact not just in China but globally. Markets are starting to speculate the Fed could bring rates down by summer.”
Traders can take advantage of short-term movements in Treasurys using the following ETFs
- Direxion Daily 7-10 Year Treasury Bull 3X Shares (NYSEArca: TYD): seeks daily investment results, before fees and expenses, of 300% of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index. The index is a market value weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than seven years and less than or equal to ten years.
- Direxion Daily 7-10 Year Treasury Bear 3X Shares (NYSEArca: TYO): seeks daily investment results before fees and expenses of 300% of the inverse (or opposite) of the daily performance of the ICE U.S. Treasury 7-10 Year Bond Index. The index is a market value weighted index that includes publicly issued U.S. Treasury securities that have a remaining maturity of greater than seven years and less than or equal to ten years.
For more market trends, visit ETF Trends.