Skip to main content
logo
Financial Professional Login
Welcome
Log in for exclusive access and a personalised experience
Log in Sign up
Benefits of creating a free account
  • Customise Guide to the Markets to create a version with your favourite slides
  • Utilise our adviser-only Digital Portfolio Insights tool
  • Unlock expert commentary from Michael Cembalest and access our annual Long-Term Capital Market Assumptions
Hello
  • My Collections
    View saved content and presentation slides
  • Portfolio Analysis
  • Funds
    Overview

    Fund Listing

    • Mutual Funds
    • ETFs
    • ETF Range
    • How to Invest

    Capabilities

    • Alternatives
    • Equities
    • Fixed Income
    • ETF Investing

    In Focus

    • Investing for Income
    • Investing for Fixed Income
    • Investing for Growth
    • Investing for Sustainability
    • Investing for Alternatives
  • Insights
    Overview

    Market Insights

    • Market Insights Overview
    • Guide to the Markets
    • Guide to Alternatives
    • Guide to Investing in Asia
    • Weekly Market Recap
    • On the Minds of Investors
    • Podcasts
    • U.S. Policy Pulse Hub
    • Solving for Fixed Income
    • Eye on the Market

    Portfolio Insights

    • Portfolio Insights Overview
    • Guide to ETFs
    • Global Asset Allocation Views
    • Global Equity Views
    • Global Fixed Income Views
    • Sustainable Investing
    • Alternatives Insights
    • Long-Term Capital Market Assumptions
  • Investment Ideas
    Overview
    • Latest ideas
    • Alternatives Outlook
    • Sustainable investing
  • Resources
    Overview
    • Multimedia
    • Insights App
    • Digital Portfolio Insights
    • Announcements
  • About Us
    Overview
    • Awards
    • Diversity, Equity and Inclusion
    • Spectrum: Our Investment Platform
    • Our Leadership Team
  • Contact Us
  • Role
  • Country
Hello
  • My Collections
    View saved content and presentation slides
  • Portfolio Analysis
  • Log out
Financial Professional Login
Welcome
Log in for exclusive access and a personalised experience
Log in Sign up
Benefits of creating a free account
  • Customise Guide to the Markets to create a version with your favourite slides
  • Utilise our adviser-only Digital Portfolio Insights tool
  • Unlock expert commentary from Michael Cembalest and access our annual Long-Term Capital Market Assumptions
Log out
Search
Menu
Search
You are about to leave the site Close
J.P. Morgan Asset Management’s website and/or mobile terms, privacy and security policies don't apply to the site or app you're about to visit. Please review its terms, privacy and security policies to see how they apply to you. J.P. Morgan Asset Management isn’t responsible for (and doesn't provide) any products, services or content at this third-party site or app, except for products and services that explicitly carry the J.P. Morgan Asset Management name.
CONTINUE Go Back
  1. The week the bond market broke, and the week everyone put It back together

  • LinkedIn Twitter Facebook Line

The week the bond market broke, and the week everyone put It back together

20/03/2020

Bob Michele

As I was waiting on the Bloomberg television set for the Surveillance Special to start on Monday March 9, I remarked to host Jon Ferro: “look at that, the equity market is closing at its lows and Treasury yields have stopped falling. This isn’t good.” In retrospect, I had no idea how bad the next two weeks would be. They were the worst in my 39 year career.

The week of March 9 began the unanchoring of the Treasury market specifically and the bond market more broadly. As all assets prices fell, there was no apparent safe haven other than government money market funds. I had never seen that before except in 1981 when Fed Chairman Volcker had raised the Fed funds target rate to 20% as there was an oil-led inflation shock passing through the system. But, in all other panics and risk-off environments, money poured into US Treasuries and high quality bond funds. This time was genuinely different. The combination of margin calls, risk parity funds unwinding, lines of credit being drawn and the need to simply raise cash created tremendous selling of government bonds and bond funds. The system was not prepared and it caught market participants and central banks off guard. The central banks began to respond with some rate cuts, some credit facilities and some balance sheet expansion. But it looked uncoordinated and insufficient as we headed into the weekend. During the week, the 10 year US Treasury traded from a low of 0.31% on Monday to 1.02% as we went home on Friday. The central banks suddenly looked powerless and the bond market was in freefall. The bond market had broken.

On Sunday March 15, the Federal Reserve stepped in and cut rates 100 bps, expanded its balance sheet and started putting in place credit facilities. Other central banks also responded with overwhelming policy. Rate cuts, asset purchases, liquidity facilities and forward guidance were all thrown at the crisis. Monday was a day of hope. Ten year Treasury yields traded at about 0.75% and the markets were functioning. Then, all hell broke loose. The combination of the next round of system wide deleveraging, the reality of what lay ahead for the corporate world and the estimates of the amount of debt funding required for massive global fiscal stimulus effectively shut down the bond market and caused 10 year Treasury yields to soar to 1.27% by Thursday. What was surprising in all of this was that the central banks continued to escalate their policy response. An alphabet of liquidity programs designed to clear the system were being deployed. Asset purchases were increased. But nothing seemed to work. Then suddenly on Thursday afternoon, the market began to respond and the first sign of stabilization in two weeks occurred.

What happened? Policy makers around the world came together the week of March 16 and worked around the clock to fix the system. This is not to suggest they hadn’t been doing this earlier…..they just went into overdrive. They reached out to market participants and to each other to try to understand what was unfolding and take feedback on how things might be fixed. There are countless stories of JPM asset management leaders around the world working through every night with regulators, monetary authorities and government treasuries to help come up with a solution to stabilize the financial system. Everyone worked together to put the market back together.

This is not to say that there are only good times ahead. The pandemic will alter the economy and the corporate world for a long time. Central banks will continue to fine tune their policies to accommodate the funding needed for recovery. And bond yields will adjust depending where restructuring and default risks appear. But for now, government bonds are again a safe haven, money should come back into investment grade bond funds and the system is functioning. That buys governments time for a comprehensive fiscal policy response to be debated, agreed and deployed. Thank you to everyone who helped fix the market……job done.

  • Monetary Policy
  • Economic Outlook
  • Market Views

RELATED ARTICLES

Moore rate cuts or a world of Cain?

President Trump has been presented with the opportunity to make a profound impact on the Federal Reserve.

Read more

Watch the lag: thoughts on core CPI (part 2 – an update)

We analyze which economic indicators the Fed should pay attention to and which ones are false alarms.

Read more

The forest and the trees

When constantly watching financial markets and following the 24-7 news flow, it can be easy to get caught up in the trees and miss the forest.

Read more
JPMorgan Asset Management

  • Terms & Conditions
  • Financial Services Guide
  • Privacy Policy
  • Cookie Policy
  • Investment Stewardship
  • Voting Policy
  • Unit Pricing Policy
  • Complaint Resolution
  • Sitemap
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

Please note:  Following recent amendments to the Corporations Act, where unitholders have provided us with your email address, we will now send notices of meetings, other meeting-related documents and annual financial reports electronically unless the unitholder elects to receive these in physical form and notify us of this election. Unitholders have the right to elect whether to receive some or all of such Communications in electronic or physical form, the right to elect not to receive annual financial reports at all and the right to elect to receive a single specified Communication on an ad hoc basis, in an electronic or physical form.


 

All investments contain risk and may lose value. This advertisement has been prepared and issued by JPMorgan Asset Management (Australia) Limited (ABN 55 143 832 080) (AFSL No. 376919) being the investment manager of the fund. It is for general information only, without taking into account your objectives, financial situation or needs and does not constitute personal financial advice. Before making any decision, it is important for investors to consider the appropriateness of the information and seek appropriate legal, tax, and other professional advice. For more detailed information relating to the risks of the Fund, the type of customer (target market) it has been designed for and any distribution conditions please refer to the relevant Product Disclosure Statement and Target Market Determination which have been issued by Perpetual Trust Services Limited, ABN 48 000 142 049, AFSL 236648, as the responsible entity of the fund available on https://am.jpmorgan.com/au.