The Coronavirus and how it Affects Loan Markets

February 6, 2020

2019-nCoV, the coronavirus that was first diagnosed in Wuhan, China has spread throughout Asia. There have currently been a dozen patients diagnosed in the United States. According to a 5-5-2020 article in CNBC Markets, “China says a total of 28,018 cases have been confirmed and 563 people have died in the country”. Over 3,800 people are considered to still be in critical condition.

The coronavirus has caused extreme volatility in Asia’s financial markets and has increased volatility in the US markets as well. The fear in world markets is that the virus could spread to the point of crippling world economies. Many businesses in China have been shut down while the Chinese government tries to get a handle on containing the virus.

US Treasuries have always been seen as a safe haven investment for worldwide investors. Treasuries have rallied significantly over the past few weeks, which has caused yields to come down further. The benchmark US 10 Year Treasury (US10Y) hit a low of 1.50% on Friday, January 31, 2020. The benchmark bond closed today at 1.64%.

Most lenders use the US10Y as a benchmark to set rates on their loans. It is not surprising that interest rates have continued their downward trend over the past few weeks, following the decline in the yield on treasuries. News on the coronavirus should be closely monitored until the outbreak is contained and fears of a widespread pandemic are alleviated.