Is More of the Same Still News?

Another day with bonds up big and stocks down bigger. The official declaration by the W.H.O. that the COVID-19 outbreak is now a pandemic along with a new U.S. travel ban excluding travelers from Europe have combined to spark new reactions and escalate old ones. Last night’s Presidential address that was meant to assuage concerns has not had the desired effect. The last-minute cancellation of the Thunder-Jazz game might be proving too much for some. If fundamentals mattered, and one day they again might, the free-fall of wholesale inflation is matched only by the free-fall of the DJIA. The BLS reported this morning that its Producer Price Index fell year-over-year in February to 1.3% from 2.1%. That’s a lot. At the core level without food and energy, that year-over-year measure skidded to 1.4% from 1.7%. While such a downside surprise might be cause for a big, bond rally on a typical day, we don’t have typical days anymore. The four point rally by the long bond is mostly due to virus-related concerns. With the two-year at around 40 basis points, the ten-year yielding 65 basis points, and the long-bond at 1.25% the curve is mostly upward sloping as long as one doesn’t count Fed Funds.