The coronavirus saga is starting to follow the outlines of the 2008 credit crisis.
The coronavirus looks ever more like a subprime mortgage.
To a man with a hammer, everything looks like a nail. And to a man (or woman) who lived through the credit crisis, every other financial disturbance looks like 2008.
I, like many readers, lived through those events. They have largely defined my career, and it has been hard to stop them from dominating my interpretations of all financial upheavals I have witnessed since. But there’s no escaping it: The past 24 hours look a lot like the events surrounding the Lehman collapse. It is obvious that plenty of traders and — crucially — politicians are aware of what went wrong then, understand the traps, and are trying to avoid them. Nevertheless, I think the rest of the coronavirus saga will follow outlines recognizable from 12 years ago.
Let’s start with the day’s most remarkable market event, which was a rise of 34 basis points in the 10-year Treasury yield, probably the world’s most important financial benchmark. That was its biggest daily move since the summer of 1987 (when the yield started as high as 8%). This was a historic move out of bonds.
Treasury bonds have just reversed their recent trend. Meanwhile the dollar has also reversed, staging what it might be fashionable to call a V-shaped recovery. Its sharp decline started at the same time as the dive in stock markets, but it has since rallied as stocks have kept falling. Indeed, its shape for the year so far is more of an “N.”