Newton IM: Paul Brain comments on US treasury 10-year yields

March 6, 2020

Paul Brain, manager of the BNY Mellon Global Dynamic Bond Fund and head of fixed income at Newton Investment Management, comments on the fall in US treasury 10-year yields:

These moves are extraordinary and suggest an air of panic. The ongoing economic shock will prompt further action from central banks although this may not be in the form of just interest rate cuts. Risk assets, such as Equities and Credit, have been holding up relatively well (better than has been suggested by the move lower in US Treasury yields) and maybe we are seeing capitulation in these areas now thereby increasing the demand for safe haven asset such as US Treasuries.

One further observation is that markets may become less liquid (especially on a Friday) and therefore price action can be exaggerated in that kind of environment. Given many investors will have been caught out by resulting economic effects of the virus it is also likely there may be liquidation of positions that are no longer appropriate. It is likely we will see further corporate (and perhaps government) casualties as a temporary hit to cashflow could translate into a liquidity event resulting in perhaps payments being missed and at extreme possibly defaults.