March US payrolls won’t capture full coronablow

French, Spanish and US (un)employment data showed the devastating impact of the coronacrisis. US weekly jobless claims for example surged in two weeks' time from below 300k to over 7 million, more than a tenfold of the previous record high. Risk sentiment hit a snag, but core bonds didn't really profit. A surge in oil prices after comments by US President Trump on cooperation between Saudi Arabia and Russia send Brent crude from $26/barrel to $36/barrel, before returning to the $30/barrel area. (Energy) shares helped erase intraday stock market weakness while core bonds felt some selling pressure. German Bunds slightly underperformed US Treasuries even as the US Treasury announced that from next week they'll start increasing the debt issuance size to pay for the huge stimulus bill. That's sooner than many expected. The 3-, 10- and 30-yr auction sizes will be lifted by $2bn, $1bn and $1bn respectively. Overall, trading ranges for the German Bund and US Note future are gradually returning to normal after an extremely volatile month of March. US yields added 1.8 bps (2-yr) to 3 bps (5-yr). German yield changes ranged between -0.8 bps (30-yr) and +2.5 bps (10-yr). 10-yr yield spread changes vs Germany widened marginally with Portugal (-5 bps) and Italy (-7 bps) outperforming.

Asian stock markets lose around 1% this morning. Apple extended the closure of its US stores at least until early May. In a first more or less easing of lockdown measures, Germany decided that seasonal workers are allowed in the country. Core bonds trade with an upward bias with Brent crude sliding back below the $30/b mark. Today's eco calendar contains US payrolls and non-manufacturing ISM's. Cut-off dates of the data compilation imply that we won't see the full impact from the coronavirus outbreak yet. That's what we've learned from the discrepancy between March ADP employment and manufacturing ISM on the one hand and weekly jobless claims on the other hand earlier this week. Overall, we expect an underperformance of US eco data compared to Europe in coming weeks/months. US Treasuries could therefore outperform German Bunds. Risk sentiment remains very fragile and could get another crack. With (near) unlimited QE programmes from central banks in place, it could imply a return to the traditional negative correlation between stocks and bonds. To conclude, we continue to err on the side of caution as we haven't turned a corner in the coronacrisis yet. Elevated stress on a corporate level could be the next domino.

From a technical point of view, the German 10-yr yield lost intermediate support at -0.43% last Friday, implying a return to the lower half of the trading band. For US yields, the Fed's unlimited QE announcement is the de facto start of curve control probably reducing volatility. That implies that the mid-March Treasury sell-off in times of stress is less likely to see a repeat.

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