A Macroeconomic Update During COVID-19

Four months after the coronavirus pandemic reached the Western world, some major themes have changed within the macroeconomic landscape. 

As time passed, we have a full display of what the pandemic created. We do not know so far what the next implications will be for societies, countries, governments. What we do know is that in the last four months, the world changed completely.

U.S. 10-Year Treasury Yield Reaching -1%

If that is not a scary headline, add to it the fact that it is for the first time since it happens. Moreover, the yields are the lowest in over two centuries. If there is a chart for the economic history books, this is the one. Effectively, the bond issuance raises more than will be repaid in principal payments and interest.

Gold Hit the $2,000 Level

Yesterday the price of gold exceeded the $2,000 level for the first time. Gold enthusiasts are vindicated, as gold’s ascent from mid-2019 is nothing but parabolic – the price doubled in less than two years.

What is even more interesting is that the 10-year yield is inversely correlated with the price of gold. More precisely, the more the yields drop, the higher the price of gold denominated in USD will rise. Hence, with no floor in sight for the U.S. yields, gold should see more gains.

European Union Issued Common Debt

This is nothing new, the proposal is here from the start of the COVID-19 crisis and was just being approved at the EU Summit last July. Still, it comes as a reaction to the economic damage from the pandemic.

Moreover, two of the three major rating agencies upgraded their outlook for the EU supranational bonds a few days ago. If the European Commission’s €850 billion issuance wins triple-A rating status, that is a game-changer for the European Union and its power to tackle the crisis.

These are just three major themes happening in the last months. They were either triggered by the crisis, like the common debt in the European Union, or accentuated by it, such as the case of gold and the U.S. yield.

In any case, they are not the only ones influencing the market activity. Only that the rest are either temporary in nature (e.g., U.S. elections in November), or not so important to affect the economic outlook on a macro level.