As he detailed to CNBC the threat the coronavirus poses to corporate earnings and the U.S. economy if the pandemic spreads.
At the same time that long Treasury yields are making new historic lows, credit spreads, while widening, remain relatively tight. This does not make any sense given the fundamental backdrop which indicate that defaults will rise significantly, particularly in energy, airlines, retailing, and hospitality. Nevertheless, central bank liquidity continues to drive flows into bonds at a record pace. These flows are keeping spreads tight and, until there is an interruption of the inflows, credit spreads will be contained.
The coronavirus is showing us the unpredictable path that an exogenous force can play in interrupting an economy that is already exhibiting many late-cycle symptoms. And it is far from over. The Center for Disease Control (CDC) has been firm in its warnings, as Dr. Nancy Messonnier of the CDC urged, “We are asking the American public to prepare for the expectation that this might be bad.”