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Round 4

27 February 2020 by jbchevrel

A recent increase in the number of newly reported COVID-19 cases outside of China (Italy, Korea) and the first “community spread” case in the US (i.e. where the individual had no relevant travel history or exposure to a known COVID-19 patient) has weighed on sentiment since yesterday evening. As a result, all the CIS are wider on the day, Main is +3.4 XO +8.8 snr +6.5 sub +15. The fair values of European indices widened by more (+4.7 +15.2 +7.2 +14.6). In the US, CDX IG +3 CDX HY +6 CDX EM +9. In terms of fair value, we widened by +5 +26 and +12 respectively. US equity futures went down more than -10% below the ~3,400 high, 10y Treasury yields down as low as 125bp before rebounding from there. Overnight President Trump failed to quell concerns about the further spread in his press conference, despite a suggestion that the media had overplayed the threats and putting Vice President Mike Pence in charge of the task force to lead the US response. As far as Europe is concerned, we have had hints at potential German fiscal stimulus and no monetary stimulus, as per the fastFT tweet relating Mrs Lagarde’s view. Europe performed broadly in line with the US in CIS, but outperformed in CDS. Late in the evening, CDS tightened back, apparently on the back of an article from the Jerusalem Post about progress on vaccine production. According to this, once the vaccine is developed, it will take at least 90 days to complete the regulatory process and potentially more to enter the marketplace. A team of Israeli scientists are on the cusp of developing the first vaccine against coronavirus, according to J Post citing the Israel’s Minister of Science and Technology. If all goes as planned, the vaccine could be ready within three weeks and available in 90 days. Past similar news over the past month had generated enthusiasm in CDS markets which proved to be short-lived, each single time. The WHO noted that the spread of COVID-19 is now faster and wider outside China than within it.