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| Troubles Percolate in the Plumbing of Wall Street | Troubles Percolate in the Plumbing of Wall Street |
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| While most investors have been focused on the rapid decline in the stock market, which had its worst day since the crash of 1987 on Thursday, a different drama is going on behind the scenes on Wall Street — potentially with bigger implications for the economy. | While most investors have been focused on the rapid decline in the stock market, which had its worst day since the crash of 1987 on Thursday, a different drama is going on behind the scenes on Wall Street — potentially with bigger implications for the economy. |
| The swift, global spread of the coronavirus has chipped away at one of the cornerstones of the financial system: the vast market for bonds, where companies and governments go to borrow money to fund operations. Wall Street banks, as well as sophisticated investors such as pension funds and hedge funds, trade these bonds, including the government debt that is considered among the safest assets in the world: United States Treasuries. | The swift, global spread of the coronavirus has chipped away at one of the cornerstones of the financial system: the vast market for bonds, where companies and governments go to borrow money to fund operations. Wall Street banks, as well as sophisticated investors such as pension funds and hedge funds, trade these bonds, including the government debt that is considered among the safest assets in the world: United States Treasuries. |
| But in recent days, as fears of a pandemic have escalated, the market for Treasuries has experienced a liquidity problem — meaning that the buying and selling of this kind of debt at reasonable prices has suddenly gotten a lot tougher. That, in turn, made already nervous investors even more frantic on Thursday, when the S&P 500 index plunged so far and so fast that trading was temporarily halted. Stocks closed down 9.5 percent, the worst performance since Black Monday more than three decades ago. | But in recent days, as fears of a pandemic have escalated, the market for Treasuries has experienced a liquidity problem — meaning that the buying and selling of this kind of debt at reasonable prices has suddenly gotten a lot tougher. That, in turn, made already nervous investors even more frantic on Thursday, when the S&P 500 index plunged so far and so fast that trading was temporarily halted. Stocks closed down 9.5 percent, the worst performance since Black Monday more than three decades ago. |
| The drama in the Treasury market prompted the Federal Reserve Bank of New York to step in on Thursday, saying that it would quickly offer banks $1.5 trillion in funding, via short-term loans, to keep the bond markets functioning smoothly. | The drama in the Treasury market prompted the Federal Reserve Bank of New York to step in on Thursday, saying that it would quickly offer banks $1.5 trillion in funding, via short-term loans, to keep the bond markets functioning smoothly. |
| That decision illustrates just how central the Treasury bonds are to the economy. They form the bedrock of the entire bond market, because interest rates on all types of bonds are set based on Treasury yields. Any signs of distress involving these bonds — a rare occurrence — means bigger problems could be underfoot for the financial system. | That decision illustrates just how central the Treasury bonds are to the economy. They form the bedrock of the entire bond market, because interest rates on all types of bonds are set based on Treasury yields. Any signs of distress involving these bonds — a rare occurrence — means bigger problems could be underfoot for the financial system. |
| For instance, it could mean borrowing costs are higher than they should be for local governments trying to raise money, homeowners trying to refinance mortgages and businesses trying to fund their operations. | For instance, it could mean borrowing costs are higher than they should be for local governments trying to raise money, homeowners trying to refinance mortgages and businesses trying to fund their operations. |
| “If you don’t know where the safest asset in the world is, it becomes next to impossible to figure out where everything else is,” said Rick Rieder, chief investment officer of global fixed income at BlackRock. | “If you don’t know where the safest asset in the world is, it becomes next to impossible to figure out where everything else is,” said Rick Rieder, chief investment officer of global fixed income at BlackRock. |
| Even in a crisis, there is a certain logic to how the markets behave. The U.S. government’s guarantee on its bonds makes them the best alternative to holding cash, so investors tend to buy more of these bonds at the first sign of trouble in the stock markets. Higher demand for these bonds makes their prices go up, which pushes down their yields because there’s an inverse relation between bond prices and the return they generate. | Even in a crisis, there is a certain logic to how the markets behave. The U.S. government’s guarantee on its bonds makes them the best alternative to holding cash, so investors tend to buy more of these bonds at the first sign of trouble in the stock markets. Higher demand for these bonds makes their prices go up, which pushes down their yields because there’s an inverse relation between bond prices and the return they generate. |
| That was the case last week, when yields fell to record lows as stock prices slid amid worsening news about the coronavirus outbreak. | That was the case last week, when yields fell to record lows as stock prices slid amid worsening news about the coronavirus outbreak. |
| But things began changing this week as investors sold Treasuries too, upending the conventional wisdom and causing prices of those bonds to plummet. | But things began changing this week as investors sold Treasuries too, upending the conventional wisdom and causing prices of those bonds to plummet. |
| “When things go bad, Treasuries rally, and if they don’t, that is incredibly problematic,” said Ajay Rajadhyaksha, an analyst with Barclays in New York and a member of the Treasury Borrowing Advisory Committee to the Federal Reserve Bank of New York, a group of top Wall Street executives who advise on conditions in the Treasury market. He added, “That’s when you begin to get concerned about whether markets are breaking down.” | “When things go bad, Treasuries rally, and if they don’t, that is incredibly problematic,” said Ajay Rajadhyaksha, an analyst with Barclays in New York and a member of the Treasury Borrowing Advisory Committee to the Federal Reserve Bank of New York, a group of top Wall Street executives who advise on conditions in the Treasury market. He added, “That’s when you begin to get concerned about whether markets are breaking down.” |
| On Wednesday afternoon, investors across Wall Street reported that Treasury debt, especially certain kinds of older bonds, was becoming hard to trade. Bond yields swung wildly. A huge gap emerged between what buyers of bonds were offering and what sellers were charging. | On Wednesday afternoon, investors across Wall Street reported that Treasury debt, especially certain kinds of older bonds, was becoming hard to trade. Bond yields swung wildly. A huge gap emerged between what buyers of bonds were offering and what sellers were charging. |
| The mismatch could be temporary. Some big investors, which can hold billions of dollars’ worth of Treasuries, may be selling to avoid further volatility. Some hedge funds that make big bets on typically minuscule movements of Treasury yields have also responded to the enormous swings by dumping their holdings of government debt. | The mismatch could be temporary. Some big investors, which can hold billions of dollars’ worth of Treasuries, may be selling to avoid further volatility. Some hedge funds that make big bets on typically minuscule movements of Treasury yields have also responded to the enormous swings by dumping their holdings of government debt. |
| Updated June 24, 2020 | |
| Scientists around the country have tried to identify everyday materials that do a good job of filtering microscopic particles. In recent tests, HEPA furnace filters scored high, as did vacuum cleaner bags, fabric similar to flannel pajamas and those of 600-count pillowcases. Other materials tested included layered coffee filters and scarves and bandannas. These scored lower, but still captured a small percentage of particles. | |
| A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. | A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico. |
| The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. | The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth. |
| The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. | The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave. |
| So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. | So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement. |
| Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. | Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks. |
| A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. | A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study. |
| The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. | The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April. |
| Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. | Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days. |
| If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) | If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.) |
| If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. | If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others. |
| But it’s causing a problem for banks, whose trading desks buy and sell these bonds and act as the middlemen of the market. In a highly liquid market, banks are able to match buyers and sellers easily, because there are only very small differences in the prices sellers are offering and buyers are willing to pay. But this week, as the difference in prices — the spread — widened, analysts said banks were left holding large volumes of bonds they couldn’t immediately sell. That dissuaded them from buying more, causing the market to dry up. | But it’s causing a problem for banks, whose trading desks buy and sell these bonds and act as the middlemen of the market. In a highly liquid market, banks are able to match buyers and sellers easily, because there are only very small differences in the prices sellers are offering and buyers are willing to pay. But this week, as the difference in prices — the spread — widened, analysts said banks were left holding large volumes of bonds they couldn’t immediately sell. That dissuaded them from buying more, causing the market to dry up. |
| With few players active, the traders who were buying and selling had an outsize influence on bond prices. Market depth, a crucial measure of Treasury market liquidity, has declined to levels last seen during the 2008 crisis, based on data compiled by JPMorgan Chase. | With few players active, the traders who were buying and selling had an outsize influence on bond prices. Market depth, a crucial measure of Treasury market liquidity, has declined to levels last seen during the 2008 crisis, based on data compiled by JPMorgan Chase. |
| The situation remained strained on Thursday, although it was somewhat improved from the previous day, said Munier Salem, vice president for fixed income strategy at JPMorgan. “Everyone has pulled back,” said Mr. Salem, who added that he expected things to get better or stabilize. “There’s diminishing capacity for it to get much worse.” | The situation remained strained on Thursday, although it was somewhat improved from the previous day, said Munier Salem, vice president for fixed income strategy at JPMorgan. “Everyone has pulled back,” said Mr. Salem, who added that he expected things to get better or stabilize. “There’s diminishing capacity for it to get much worse.” |
| The virus, which has forced sports leagues to suspend play and forced legions of employees — including traders — to work from home, poses challenges that stretch beyond the usual stresses at a time of financial uncertainty. Some strategists suggested the physical distance between traders now working remotely or from backup offices had hampered communication and complicated the smooth movement of Treasuries and other bonds. | The virus, which has forced sports leagues to suspend play and forced legions of employees — including traders — to work from home, poses challenges that stretch beyond the usual stresses at a time of financial uncertainty. Some strategists suggested the physical distance between traders now working remotely or from backup offices had hampered communication and complicated the smooth movement of Treasuries and other bonds. |
| The Fed’s decision to step in on Thursday was its latest attempt to steady crucial financial machinery. Earlier this week, it sharply increased the size of the temporary loans it makes to eligible banks and extended many of those loans over a longer period of time. Its Thursday escalation should help to meet the short-term cash needs of financial institutions. The Fed, which has been buying $60 billion in assets monthly, is also shifting away from short-term Treasury bills and toward a wider range of Treasury securities, which could help further reduce market pressure. | The Fed’s decision to step in on Thursday was its latest attempt to steady crucial financial machinery. Earlier this week, it sharply increased the size of the temporary loans it makes to eligible banks and extended many of those loans over a longer period of time. Its Thursday escalation should help to meet the short-term cash needs of financial institutions. The Fed, which has been buying $60 billion in assets monthly, is also shifting away from short-term Treasury bills and toward a wider range of Treasury securities, which could help further reduce market pressure. |
| Marc Lasry, senior principal of the $10.5 billion investment firm Avenue Capital, said that while he believed the economic slowdown would be relatively short-lived, the anxiety of market participants was understandable. | Marc Lasry, senior principal of the $10.5 billion investment firm Avenue Capital, said that while he believed the economic slowdown would be relatively short-lived, the anxiety of market participants was understandable. |
| “When everybody wants to be in cash, as opposed to financial instruments, that’s when you start having issues, and that’s what’s happening now,” Mr. Lasry said. | “When everybody wants to be in cash, as opposed to financial instruments, that’s when you start having issues, and that’s what’s happening now,” Mr. Lasry said. |
| Kate Kelly contributed reporting. | Kate Kelly contributed reporting. |