Global stocks panic as oil price plunges and Covid-19 spreads

Investors piled into safe-haven bonds, driving the 30-year US bond yields beneath 1% on bets that the US Federal Reserve will be forced to cut interest rates by at least 75 basis points at its March 18 meeting, after having already delivered an emergency easing last week.

The US 10-year treasury yield fell to as low as 0.318% in its biggest daily fall since 2011 — during a sovereign debt crisis across the eurozone.

The number of people infected with the coronavirus rose above 110,000, and 3,800 have died from the virus.

“Markets appear to be capitulating as the virus arrives in the US, the heart of global finance,” said BofA’s David Hauner.

There were mounting worries that US oil producers that had issued a lot of debt would be made uneconomic by the price drop.

The mood was also hit by North Korea firing three projectiles off its eastern coast.

Noting that many central banks had little scope to ease further, Martin Whetton, head of bond & rates strategy at CBA, said “let’s hope we start to see some more clarity on the reaction”.

Bond bonanza

Markets fully priced in an easing of 75 basis points from the US Federal Reserve on March 18, while a cut to near zero was now seen as likely by April.

The European Central Bank meets on Thursday and will be under intense pressure to act, but rates are already deeply negative.

“This week’s European Central Bank (ECB) meeting will be the first test case for ECB president Christine Lagarde,” ING’s eurozone chief economist Carsten Brzeski wrote in a note. “With hardly any ammunition left and confronted with an external shock which cannot be tamed by economic policies, the ECB will have to balance carefully between words and deeds.”