Page 8 - Ives, Martyn - Review Report - July 2020
P. 8
Bonds and Cash
At a headline level, bonds fared well in the
March quarter with Australian bonds up
3% and global bonds up 1.3%. But all of
the gains came from sovereign bonds with
corporate bonds hard hit in the quarter
given cashflow and balance sheet
concerns. Cash yields fell as the RBA cut
rates twice in the quarter taking the official
rate down to 0.25%.
The March quarter saw probably the
biggest contrast in fortunes and events
we’ve seen since the global financial
crisis. January and early February seem
like a distant memory, but it’s worth
recapping where the quarter started
before, we got to March. As we headed into February, we saw
China implement fairly significant
January was a strong month, both containment policies in order to contain
economically and from an asset price the spread of virus outside of Wuhan.
perspective, with investor sentiment Those containment policies were originally
buoyed by the removal of risks attached to too relaxed when it came to domestic and
the US/China trade war, following a phase international travel, but then moved to very
one trade deal and a disorderly Brexit extreme once the Chinese realised how
scenario, both which were resolved virulent the virus was, which resulted in
towards the back end of 2019. Investor almost 100 million Chinese citizens being
sentiment was also supported by the in full lockdown (i.e. in Wuhan, residents
stimulus provided by central banks in the were confined to their homes). These
second half of 2019 to mitigate the policies originally resulted in a global
negative effects of the trade war, the supply shock as many of the goods the
increasingly likelihood that we were world consumes either come from or pass
getting closer to some sort of fiscal through China.
stimulus from Europe following years of
austerity post the financial crisis, the fact The spread of the virus outside of China,
that economic data globally had begun to originally through Iran, South Korea, and
stabilise and turn a corner, and because Italy, then broader Europe and the US,
the only major risk on the agenda for 2020 resulted in significant containment policies
was a potentially messy US Presidential to control the spread of the virus, prevent
election result. deaths, and try to prevent hospital
systems from becoming overburdened.
January also saw the emergence of the Those same containment policies resulted
Covid-19 virus in China, but at that stage in economic paralysis, a significant rise in
containment appeared likely and the unemployment, and left companies
virulent nature of the virus was less well scrambling to try and save their
known. businesses.
