Government bonds in demand while the recent stock rally goes into reverse

“It was a sour end to the week for markets as investors’ hopes over a full blown equity recovery were dashed. Following renewed selling on Wall Street last night, Asia, Europe and UK stocks traded lower on Friday as markets remained very fearful about the economic and social impact of the coronavirus ,” says Russ Mould, Investment Director at AJ Bell.

“Hong Kong’s Hang Seng index fell 2.3%, meaning that nearly all of its gains earlier this week were wiped out. The biggest losers were industrials, consumer cyclicals and telecoms. Shanghai’s SSE Composite index retreated by 1.2%.

“On the UK stock market, the FTSE 100 traded 1.4% lower at 6,609 on Friday although that was still high enough to put the index up on the week. Big fallers on the day included Carnival, Virgin Money and Cineworld.

“Sovereign bonds were in hot demand. The US 10-year Treasury yield fell to 0.81% as investors who are seeking safety in falling markets showed a ferocious appetite for government bonds, pushing up their price (and pushing down the yield). The US 30-year Treasury yield also slid below 1.5% for the first time.

“Non-stop news headlines about the spread of coronavirus has caused investors to be very concerned about a global recession. This tension is likely to remain front and centre until we get some evidence that the virus can be contained. Central banks have already begun to cut interest rates and further action is expected over the coming months to help businesses and economies.

“On industry level, the pharmaceutical companies is under increasing pressure to create a vaccine, while the airline sector is having to do everything it can to deal with a sudden decline in business."

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