Highlighted Commentary what I feel is most important in this piece
As it concerns the yield curve the directional belly of the curve has taken over the leadership from the long-end with this too likely to persist unless the virus situation improves.
As much of the global economic fallout is seen as impacting the supply side (shut businesses and quarantined workers) there is not a lot that central banks and/or fiscal stimulus can do to address a situation whose remedy is a virus vaccine. Even so, central bankers, including the Fed fancy themselves as risk-managers. As they guided, they will be closely monitoring the situation. Should the virus situation worsen (and should equities suffer significant loses) the Fed’s “outlook” will surely change. This suggest that an already relatively low bar for the Fed to ease has moved even lower.
With this, we will reverse our curve bias to one of further flattening to one of steepening if the belly will likely continue to outperform until the Fed signals a rate cut is imminent.