Bob Morgane of JP Morgan said the record yields on the Treasury market are part of an action that has not been seen in bonds for 40 years.
Liquidity problems where buyers and sellers find it difficult to agree on prices are only part of the problem, “said Michele, the company’s chief investment officer and responsible for global fixed income, on Monday. , on CNBC’s “Power Lunch”.
“I’ve been doing this for 40 years. I’ve never seen it before,” said Michele to Steve Liesman of CNBC, who inquired about the half-point difference between what buyers were willing to pay and the sellers were ready to sell, referred to as the bid-ask spread.
In fact, Michele said that at one point, he received a call from the London office of JP Morgan Asset Management to tell him that there were no offers on the 30-year bond.
“I have never seen this before,” he said. “These are unknown times for sure.”
Liquidity problems occurred when the 10-year yield fell below 0.4% and the 30-year bond fell below 1%, the first two in a bond market that saw a rush of buyers looking for security amid fear of coronaviruses and a price war on the oil market.
Michele said the Federal Reserve is going to have to provide more flexibility, and he expects an announcement can be made today. The Fed last week lowered emergency rates by 50 basis points and announced Monday that it is increasing the amount available in its short-term funding program, or repo, for banks.
“They have to put cash into the system and they have to pressure Washington to figure out how to get lines of credit for small and medium businesses,” he said.
However, he said the central bank also needed help from the White House and Capitol Hill tax authorities. A fiscal stimulus “would stop it in its tracks”, he said of the decline in bond yields, even if he still sees 50-50 chances of recession.
Michele said he expects the Fed to announce rate cuts of 50 basis points in March and April, which would bring its benchmark rate back to zero, where it was during the financial crisis and for seven years after.