Flash commentary

Views from our Australian fixed income team

01 Apr 2020

What’s happened so far

  • The widening spread of COVID-19 (coronavirus) has pushed financial markets and the economy into uncharted waters and generated acute volatility and uncertainty. Market movements over March have been highly volatile, being felt across asset classes and regions, including Australian and global fixed income markets.
  • There have been significant policy responses from both monetary and fiscal, with the clear objective of putting a base under economic growth and supporting the efficient functioning of financial markets. Never before has the scale of policy intervention been so large and open-ended. This is reflective of the sudden and broad nature of the shock that has impacted the global economy, with the full duration and extent of the impact yet unknown.
  • Despite the policy responses from governments and central banks during the course of the month, Australian and global government bond yields saw a sharp rise to peak on 19 March – particularly in the long end of the yield curve – before stabilising and then falling as major central banks intervened through asset purchases. Inflation expectations have also deteriorated in this environment, prompting real yields to jump higher with the combination of markedly lower inflation expectations and higher bond yields. 
  • Credit markets have been negatively impacted given the dramatic risk-off move and both Australian and global credit spreads have materially widened, with high yield markets worst hit.

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