When the full impact of Coronavirus hit the market, almost all risk assets fell sharply for one whole month from late February to March 23rd in a widespread market panic. Equities, Corporate Bonds, Financial Bonds, EM bonds and Commodities. Virtually the only assets that rose were the US dollar and Gold.
In the bond market, Government bonds rallied in a flight to safety while corporate bonds fell and corporate bond spreads widened. The sharp fall in oil prices complicated the situation further as it led to an additional panic in the US High Yield market where many Shale producers had issued debt.
Many Central Banks responded quickly with various monetary easing measures and QE bond-buying programmes. These moves helped to stabilise markets and stopped the declines around March 23rd.
Companies responded to the crisis first by drawing down on agreed Credit Facilities to the maximum and then doing bond issues. At this stage, they were just keen to get the money and the pricing was more generous than it would be in more normal market conditions.
We have seen an unprecedented wave of bond issuance in both North America and Europe as virtually all companies, sovereigns and other agencies have issued paper. It is estimated one trillion dollars have been issued in the US and a similar amount in Europe since March 23rd.
The Central Bank actions supported markets and encouraged investors. Equity markets have bounced back sharply (the S&P 500 is 40% above the March 23rd low) and corporate bond prices roared back rose significantly in line with equities. Investors who had bought the generously priced and often long-dated US dollar bonds issued by US companies in late March and early April show particularly large gains.
It was not just Central Bank action that helped to support the markets and turn around sentiment but also the fiscal measures put in place by governments. Huge programmes to support workers in the USA and UK and other countries banished fears that incomes would collapse.
Central Banks have increased their measures even as the markets recovered. The US Fed announced programmes to buy bonds in the primary and secondary market initially through ETFs and most recently by buying individual bonds. The Bank of England, the Bank of Japan, the ECB, Bank of China and many others both cut interest rates and increased the scale and scope of bond buying.