COVID-19: Impacts on the Nordic High Yield Market
COVID-19, the novel Corona virus, has created massive headlines around the world in early 2020.
The direct effects of the virus situation in the Nordics is however very limited so far.
Aside from the obvious questions concerning the rate of spread and mortality of the virus, financial markets have been preoccupied with estimating the economic fallout from the virus and from the measures implemented to contain it.
By now it is received wisdom that there will be a major short term impact on growth in China and major parts of Asia. This follows directly from the shut-down of economic activity in large parts of China and travel restrictions within China, and also between China and a number of other countries. There is also a growing realization that global value chains will be impacted in many industries, most recently made clear by the profit warning from Apple for Q1 2020. Other industries, such as automobiles and airlines will also be impacted.
The financial markets have been remarkably stable
Relative to the massive media and analyst coverage of the effects of the virus financial markets have been remarkably stable. Whether we look at equity or credit markets the main observation is that market impacts so far have been quite modest.
Investment Grade credit spreads in Europe and the US:
High Yield credit spreads in Europe and the US:
Equity markets (normalized from 30.09.2019)
As the illustrations show there was some initial short-lived volatility in the various markets in the second half of January. Since then the markets have rallied and even the Chinese equity market has now returned to close to previous highs.
