Treasury yields come off lows as crude-oil surge lifts inflation expectations

U.S. Treasury yields bounced off their lows on Thursday as a surge in oil prices spurred by hopes of coordinated production cuts between Saudi Arabia and Russia helped to lift inflation expectations, a bugaboo for bondholders.

Investors also saw a back-to-back jump in U.S. weekly jobless claims, closing the curtain over one of the strongest labor markets in American economic history.

What are Treasurys doing?

The 10-year Treasury note yield

TMUBMUSD10Y, +5.05%

 was virtually unchanged at 0.624%, off an intraday low of 0.567%, while the 30-year bond yield

TMUBMUSD30Y, +2.70%

 was down 1.7 basis points to a three-week low of 1.268%, but up from a intrasession nadir of 1.207%.

The 2-year note rate

TMUBMUSD02Y, +9.23%

  was down 1.4 basis points to 0.218%, around its lowest level since May 2013.

What’s driving Treasurys?

President Donald Trump said in a tweet that he had talked to Saudi Arabia and Russia, and that he expected to see oil production cuts of up to 15 million barrels a day.

His comments helped to push up oil prices and inflation expectations, based on trading in Treasury inflation-protected securities. Bond investors’ inflation prospects over the next decade, or breakeven rates, rose by around 11 basis points to around 1.03% on Thursday.

Higher oil prices and inflation pressures can weigh on government paper by eroding the value of their fixed-interest payments. The surge in inflation expectations in TIPs also reflected the lack of liquidity in certain corners of the Treasurys market, said market participants.

Trump’s comments helped to offset disappointing economic data that had provided a bullish tilt in early trading on Thursday. Americans filing for unemployment benefits for the weekly period ending March 28 surged by 6.65 million, following a 3.28 million rise in initial jobless claims in the week before. Economists polled by MarketWatch had forecast claims to surge by 4 million.

As an up-to-date indicator of the job market’s travails, the claims number highlights the disruptions that are threatening to throw the world’s largest economy into a recession.

In other data, the trade deficit fell $39.9 billion in February, down from $45.3 billion in January.

See: Jobless claims leap record 6.6 million at end of March as coronavirus triggers mass layoffs

What are market participants saying?

The surge in inflation expectations “speaks to how illiquid the TIPs market is,” said Michael Lorizio, senior fixed-income trader at Manulife Investment Management. “Pre-crisis, breakevens were anchored at a tight range. The problem is you’re continuing to see illiquid pockets in the Treasurys market like TIPs, which are illiquid even on its best day.”

“More people are applying for unemployment insurance as more segments of the economy are shutting down in the wake of the coronavirus,” said Andrew Smith, chief investment officer of Delos Capital Advisors, in a note.

“Companies will take a considerable amount of time to re-hire workers. The longer it takes for the economy to restart, the longer companies will take to get back into gear,” said Smith.

What else is on investor radars?

The Federal Reserve temporarily eased capital requirements for banks on Wednesday, allowing them to increase their balance sheets and lend out funds to households and businesses.

The Fed’s actions may encourage Wall Street’s near two dozen primary dealers to facilitate trading in the bond-market to ramp up their operations and soothe liquidity issues that briefly seized up liquidity in the Treasurys market last month, analysts said.

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He nailed the March coronavirus selloff — now he says there’s another 30% to go before the stock market hits bottom

Hedge-fund manager Dan Niles, in a note cited by Yahoo Finance this week, warned his clients way back in February that he was getting “increasingly worried” investors weren’t ready for the impact the spread of the coronavirus could have on the U.S. economy.

So Niles positioned his portfolio accordingly. Good thing. While the Dow Jones Industrial Average

DJIA, +0.33%

posted its worst first quarter ever, his Satori Fund closed in positive territory.

But, more importantly, where do stock markets go from? Definitely not higher, if Niles has it right.

“If you go back and look at history, there are nine times that the market has sold off about 30% or so since the 1920s, so it’s pretty normal,” he said this week. “You get one of these every 10 years or so and if you look at every one of them, you always get these bear market rallies.”

Nile told Yahoo Finance that he sees another major drop from here, pointing to valuations that are still hovering well above historical norms, even after the painful pullback.

“Just to get to average, you would have to have the market go down 30%,” he said. “It is very easy to figure out the market probably goes down 30% before we’re even near fair valuation.”

So, no bottom yet?

“I sort of laugh when I hear people talking about a V-shaped recovery because we are going to have at least 10% unemployment, my guess is closer to 20% before all of this is said and done,” Niles said. “You are not going to get a fast recovery with that many people out of a job and we’re not just talking in the United States. We are talking all across the globe there are problems that are happening.”

Nile explained that he’s still adding to his short positions, but he’s also going long in areas he believes to be resistant to the next batch of selling. He said he’s adding to his stakes in Activision

ATVI, +3.34%

, Take-Two Interactive

TTWO, +0.42%

and Amazon

AMZN, -0.40%


Check out the full interview:

Stocks came off their highs in Thursday’s session, with the Dow, S&P

SPX, +0.56%

and tech-heavy Nasdaq

COMP, -0.05%

all turning lower in afternoon trades.

Also read: Brace for the ‘deepest recession on record,’ says BofA analysts

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Fitch sees ‘deep global recession’ just 10 days after predicting slow economic growth

In a chilling reminder of how fast the coronavirus epidemic has spread around the world, Fitch Ratings changed its 2020 view on the global economy to “deep global recession” from slow growth in just 10 days.

“The speed with which the coronavirus pandemic is evolving has necessitated another round of huge cuts to our [gross domestic product] forecasts,” Fitch said in a research report.

The credit rating agency said it now expects world economic activity to decline by 1.9% this year. On March 22, Fitch had projected global GDP growth of 1.3%.

“A deep global recession in 2020 is now Fitch Ratings’ baseline forecast according to its latest update of its Global Economic Outlook (GEO) forecasts,” Fitch said. The new baseline forecast incorporates full-scale lockdowns across Europe, the U.S. and many other countries, something the forecast in March didn’t assume. Read MarketWatch’s coronavirus update.

“The forecast fall in global GDP for the year as a whole is on par with the global financial crisis, but the immediate hit to activity and jobs in the first half of this year will be worse,” said Brian Coulter, Fitch’s chief economist.

In the U.S., Fitch said it expects the lockdowns to result in an “unprecedented peacetime” one-quarter GDP decline of 7% to 8% in the second quarter, or 28% to 30% on an annualized basis.

Also read: Jobless claims leap record 6.6 million at end of March as coronavirus triggers mass layoffs.

See related: U.S. manufacturers see biggest plunge in new orders and employment in 11 years — ISM finds.

For the year, Fitch is projecting U.S. GDP to decline 3.3%. Last week, Fitch said if its baseline GDP forecast deteriorated further, U.S. GDP could fall by “almost” 1%, which means the effects of the coronavirus outbreak is much worse than Fitch had imagined it could be at the time. See Economic Report.

Fitch isn’t alone in predicting a deep recession, as Bank of America Global Research said it expects the COVID-19-related recession in the U.S. to be the “deepest recession on record,” nearly five times worst than the postwar average.

Fitch also now expects eurozone GDP to fall by 4.2% this year and the U.K.’s GDP to decline 3.9%, while China’s GDP is expected to grow by less than 2%. Last week, the expectation was for Europe’s GDP to fall “by more than 1.5%” and China’s GDP to slow to growth of “slightly higher” than 2%, if its baseline forecast deteriorated.

While there is some optimism that in the second half of the year, government stimulus could help contribute to a recovery, and that the health crisis will likely be broadly contained, Fitch warned not to expect a V-shaped economic bounce, as the negative impacts on consumer behavior are likely to linger into next year.

“Our [new] baseline forecast does not see GDP reverting to its pre-virus levels until late 2021 in the U.S. and Europe,” Coulton said.

The Dow Jones Industrial Average

DJIA, +1.80%

 has lost 26% year to date. That includes a first-quarter decline of 23.2%, which was the worst one-quarter performance for the index since the fourth quarter of 1987.

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Here are the best bets for investors seeking income, according to Goldman Sachs

Getty Images

Home Depot is one of Goldman Sachs’ best bets for dividends.

It’s hard times for anyone relying on income investments. The stimulus bill signed into law Friday keeps any companies that borrow from the government from paying dividends to shareholders for at least a year after the loan is repaid — even as bond yields have collapsed to to near all-time lows.

That makes it critical for investors focused on income to “consider stocks with both high dividend yields and the capacity to maintain the distributions,” Goldman Sachs strategists wrote in an analysis out Monday.

Earlier coverage: Dividend ETFs may lose out under the $2 trillion coronavirus relief bill

The provisions of the CARE Act likely exacerbate a trend of companies trying to keep as much cash on hand as possible as the economic downturn worsens. The Goldman strategists estimate dividends for S&P 500 stocks will decline 25% to $44 per share in 2020, and note 12 companies, ranging from Apache Corp.

APA, +9.70%

  to Old Dominion Freight Line

ODFL, -1.43%

, have already reduced or suspended their shareholder payouts.

“We expect significantly more dividend cuts are likely to be announced during April in conjunction with the release of quarterly financial results,” the analysts wrote.

The Goldman team screened the Russell 1000 for companies with an annualized dividend yield greater than 3%, ample cash on hand, healthy balance sheets, and what they call “reasonable payout ratios.” Each of the stocks they identified have not under-performed the rest of the market since the peak, are rated by S&P as at least BBB+.

“The typical stock on our list has paid its dividend for 90 quarters (23 years) without reducing its distribution,” the Goldman strategists wrote. Their full list contains companies from 10 of the 11 S&P 500 sectors; energy is the only one missing. We’ve listed the top — highest-yielding — stock from each of the 10 sectors below.

Company Annual dividend yield Consecutive quarters with no dividend cut Sector
Omnicom Group Inc.

OMC, +0.93%


5% 50 Communication services
Home Depot Inc.

HD, -1.79%


3.1% 128 Consumer discretionary

ADM, +0.29%


4.3% 23 Consumer staples
Wells Fargo & Co.

WFC, -0.04%


6.7% 39 Financials
Bristol-Myers Squibb

BMY, -1.07%

  (tied with Merck & Co. Inc.

MRK, +0.58%


3.4% 114 Health care, pharmaceuticals
3M Co.

MMM, -0.56%

  (tied with Emerson Electric Co.

EMR, +1.17%


4.4% 156 Industrials

IBM, +1.30%


6.0% 102 Tech
Nucor Corp.

NUE, +0.03%


4.8% 41 Materials
Regency Centers

REG, +0.38%


5.9% 39 Real estate
CenterPoint Energy

CNP, +1.03%


7.1% 55 Utilties
Source: Goldman Sachs

About one-third of the stocks that wound up on Goldman’s list of 40 are financials. The strategists wrote that their bank equity research analyst colleagues had modelled stress scenarios and found that “banks are in a position to maintain dividends at or close to the current run rate.”

That’s an important caveat given the particularly precarious position for financials now. It’s not just the economic fall-out from the coronavirus pandemic that’s troubling them, but an expected wave of defaults and bankruptcies from the collapse in oil prices.

Related: American businesses are tapping their credit lines at the fastest pace ever

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‘Fractional investment’ app backed by actor Will Smith and NFL star J.J. Watt surges in popularity as coronavirus fears roil financial markets

One way to navigate turbulent financial markets? Follow Will Smith and his crowd of fractional investors.

The social-investing app Public, whose backers include the Hollywood actor as well as the NFL defensive end J.J. Watt, says it has seen a 70% increase in interaction among its members as they turn to the startup to guide them through the worst rout in equity markets since the financial crisis.

Speaking with MarketWatch from his apartment in New York, Jannick Malling, co-CEO of Public, said members have been opening the app three times more frequently since the coronavirus crisis escalated in the U.S. two weeks ago.

“When the market dropped, we saw novice investors looking to see what more experienced investors were doing, instead of just following human intuition to immediately start panic selling,” Malling said.

Public allows anyone to buy a slice of a share in any publicly traded U.S. company for as little as $5, commission-free. Members can follow a social feed allowing them to exchange ideas among friends and see which stocks more experienced investors are putting there money in, which Malling said is part of the Public mission to build “financial literacy for the next generation.”

“Some people are intimated by investing in the stock market and might not have the money to buy into highly valued stocks like Amazon

AMZN, -2.16%,

which on Wednesday closed at $1,907.70 a share, or Google parent Alphabet

GOOG, -4.92%

GOOGL, -5.15%,

whose Class A shares ended the day at $1,102.10.

“Public opens that process up to more people by letting them invest alongside a community,” Malling said. “It’s a bit like a cross between a social network and a stock brokerage.” Typical users are in their early 20s, but Malling said the social-investing app has attracted a diverse community.

In March, the app saw a 50% increase in new members. “In moments like this, when the market falls, some people might want to invest more,” Malling added.

The current market volatility

VIX, +6.57%

has seen a big move by Public’s members into ETFs. They are also viewing the app’s “themes section” more, which, much like a Spotify

SPOT, +0.14%

 playlist, allows them a venue to learn about new sectors and industries. “Fighting disease,” for instance, includes companies involved in efforts to cure cancer and other diseases, while the theme “the future is female” comprises a collection of all S&P 500–listed companies run by women CEOs.

The social-investing app earns revenue from lending stock to short sellers, as well as from interest on the cash balances in accounts.

In January, Public raised $15 million in a Series B financing round, which was led by venture-capital funds Accel and Greycroft. YouTube creator and entrepreneur Casey Neistat, Girlboss founder Sophia Amoruso and Japanese soccer star Keisuke Honda were among those who participated in the funding round.

Malling said Public plans to use the cash to grow its community and will be adding new features that allow members to find more ways to connect.

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