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CROSS ASSET WEEKLY
21.02.2020

Bond yields are grinding lower

Summary
Cross asset weekly pic
Uncertainty about the extent and the duration of the current disruption caused by the Coronavirus outbreak continues to drive global fixed income markets. Investors are buying government bonds, and in particular US Treasury securities, as doubts about the global economic recovery are rising. This is highlighted by deeply negative term premiums on government bonds. Once the outbreak is perceived to be under control, we would expect that trend to be reversed. For now, government bond markets will continue to trade as a preferred asset of choice for hedging risk and yields will likely grind even lower.
In the FX-space, we expect the euro to remain under pressure in the near term as the current flight to safety favors the USD. We expect EURUSD to recover to 1.15 when the current disruption from the outbreak eases, while the South African rand should outperform the Brazilian real once the tide against EM eventually turns.

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