A positive week for credit gradually faded as fears of Coronavirus global contagion began to take hold. All headlines centred around cases emerging outside China, while Chinese authorities attempted to contain the virus by restricting travel and placing certain cities under quarantine. Most of the market impact occurred Thursday and Friday, with US credit spreads widening 3-5 bp while Treasury yields fell by 10 bp. In Europe, the European Central Bank made no changes to interest rate policy and announced a strategic review of its mandate, the results of which are expected later in the year.
Canadian credit outperformed other asset classes, widening by an average of 2 bp for the week as a result of the global virus fears. Domestic markets were buoyed somewhat by a dovish Bank of Canada announcement on Wednesday, leaving rates unchanged but suggesting a cut may be warranted later in the year. The news caught government bond traders by surprise, pushing yields sharply lower and the Canada-US 10-year spread to a year-to-date wide at -30bp. Despite the cautious tone, RBC managed to raise $2.25 billion with the launch of a new 7-year bond.
Pandemic headlines have accelerated over the weekend, and we begin this week with a decidedly risk-off tone. Primary issuance is expected to be on the slow side with the closing of Asian markets for the Lunar New Year while the FOMC and BOE will provide updates this week.