Wall St.Journal 27Feb2020

THE WALL STREET JOURNAL. **** Thursday, February 27, 2020 |B11

tween gains and losses.

Asian markets closed

lower. Japan’s Nikkei 225 in-

dex shed 0.8% to reach its

lowest level since October.

Australia’s S&P/ASX 200

dropped 2.3% and South Ko-

rea’s Kospi fell 1.3%. Early

Thursday, the Nikkei was

down 1.8%, the S&P/ASX was

down 1.1% and the Kospi was

off 0.9%.

Crude-oil prices fell for the

fourth consecutive session. U.S.

oil futures dropped 2.3% to set-

tle at $48.73 a barrel. Oil fu-

tures had picked up earlier

Wednesday, after data showed

U.S. crude inventories rising

less than expected, but then

gave up their gains.

Many European and Asian

benchmarks, including those in

Germany, Japan, and South Ko-

rea, are solidly in negative ter-

ritory for the year.

among investors that the Fed-
eral Reserve may cut interest
rates at least two times later
this year.
Volatility in U.S. equity mar-
kets remained high. The Cboe
Volatility Index, a closely
watched measure of market
turbulence known as VIX, fell
1% to 27.56, a day after hitting
its highest levels in more than
a year.
In Europe, the pan-continen-
tal Stoxx Europe 600 was flat
for the day after wavering be-

Continued from page B1

Dow, S&P

Extend

Declines

Once and Future Returns

Aftermonthswhenstocksperformpoorly,investors’

expectationsforfuturegainsgodown.Whenstockshave

strongreturns,expectationsrisewiththem.

Expected

one-year

returns

Actual

monthly

returns

S&P 500 returns

Note: Survey data on expected returns collected every other month.

Source: Vanguard Group

10

–10

–5

0

5

%

2017 ’18 ’19

AUCTION RESULTS
Here are the results of Wednesday's Treasury
auctions. All bids are awarded at a single price atthe
market-clearing yield. Rates are determined by the
difference between that price and the face value.
FIVE-YEAR NOTES
Applications $106,892,490,800
Accepted bids $47,196,559,300
" noncompetitively $32,744,700
" foreign noncompetitively $0
Auction price (rate) 99.878957
(1.150%)
Interest rate 1.125%
Bids at clearing yield accepted 54.82%
Cusip number 912828ZC7
The notes, dated March 2, 2020, mature on Feb. 28,
2025.
ONE-YEAR, 11-MONTH FRNs
Applications $44,793,674,500
Accepted bids $18,000,022,500
" noncompetitively $10,424,500
Spread 0.154%
Bids at clearing yield accepted 40.54%
Cusip number 912828Z45
The floating-rate notes, dated Feb. 28, 2020, mature
on Jan. 31, 2022.

Municipal-bond yields are

hitting 38-year lows due to in-

vestors’ coronavirus concerns

driving up demand in the $4

trillion muni market.

Fears of the coronavirus’s

impact on global markets led

to a stock selloff on Monday

and Tuesday. Investors flocked

to munis and other fixed-in-

come investments for stability.

The S&P Municipal Bond Index

continued to climb Tuesday af-

ter logging its biggest one-day

gain in 20 months Monday.

A daily gain that big—

about one-third of a percent-

age point—has occurred only

five times in the past three

years.

“Fear is present and inves-

tors are taking some risk off

the table,” said Sylvia Yeh, co-

head of municipal fixed in-

in the past decade with the

proliferation of muni mutual

funds and exchange-traded

funds, which now hold $852

billion worth of munis, accord-

ing to the Federal Reserve.

Municipal-bond funds re-

ported net inflows of $96.5

billion last year, a 28-year re-

cord, according to Refinitiv,

and $1.8 billion in inflows for

the week ended Feb. 19, the

most recent data available.

Fund managers working

overtime to field calls from

concerned investors expect

that number to go up this

week.

MARKETS

a spokeswoman said. The com-

pany wouldn’t confirm it asked

staff to telecommute.

With U.S. health authori-

ties saying Tuesday they now

expect a wider spread of the

coronavirus in the country

and are preparing for a po-

tential pandemic, oil-market

watchers were bracing for

further impact. “It’s spread-

ing in Europe and it’ll spread

in the U.S. with a wider nega-

tive demand shock from the

U.S. side,” said Bjarne Schiel-

drop, chief commodities ana-

lyst at SEB Markets.

Analysts have already

slashed their demand fore-

casts for oil products exposed

to the travel sector.

“The jet [fuel]/kerosene

market has arguably suffered

the most from the coronavi-

rus outbreak,” analysts at JBC

Energy said in a note. “We

have shaved off more than

half of our global demand

growth forecast for 2020

since January.”

Wednesday’s drop took

WTI’s losses to 20% so far in

2020. Brent crude oil is down
      19% this year.
      This week’s sharp oil-price
      drops have come amid the In-
      ternational Petroleum Week
      event in London, where nu-
      merous global oil companies
      have canceled customary re-

ceptions or banned represen-

tatives from attending alto-

gether.

“Unfortunately, due to the

Coronavirus situation world-

wide, we regret to inform you

that we have decided to can-

cel our event, giving priority

to the health and safety of

our business partners and

employees,” said Geneva-

based oil trading company

Saras TradingSA in an email

to guests.

A planned summit between

the Organization of the Petro-

leum Exporting Countries and

its allies, due to take place

next week in Vienna, will

likely provide further direc-

tion for prices.

While Saudi Arabia unsuc-

cessfully pushed for an earlier

meeting and has continued to

advocate for deeper cuts, Rus-

sia hasn’t fallen in line. The

cartel’s failure to deepen pro-

duction cuts would prompt an

even sharper drop in oil prices

and particularly damage the

U.S. market, analysts said.

“The sensible thing for Rus-

sia to do would be let the

[U.S.] shale price erode even

more,” said SEB Markets’s Mr.

Schieldrop. “When demand

kicks back in, instead of higher

prices that will stimulate

shale, shale will decline, mak-

ing room for Russian oil.”

U.S. crude hit its lowest

price in more than a year on

Wednesday as concerns about

the spread of the coronavirus

outside China once again

dragged oil markets down and

began to affect operations of

some key oil players in Eu-

rope.

The main U.S. oil-price

gauge, West Texas Intermedi-

ate, fell 2.3% to $48.73 a bar-

rel, its lowest closing price

since Janu-

ary 2019.

Brent crude,

the global benchmark, fell

2.8% to $53.43 a barrel.

Some Western companies

began asking staff to work from

home, and investors traded on

worries that the virus will con-

tinue to spread beyond China,

stymieing global demand for oil

and oil products.

“Demand’s being hit left,

right and center and the trad-

ing volumes are getting lower

as well,” said Robert Monte-

fusco, a broker at London

commodities trader Sucden Fi-

nancial.

Employees at Chevron

Corp.’s Canary Wharf, London

office were working from

home on Wednesday, as the

company awaited results from

coronavirus tests. A worker at

the U.S. oil giant’s trading op-

erations had flulike symptoms

earlier in the week, prompting

a decision to ask staff at that

office to telecommute, accord-

ing to a person familiar with

the matter. Some 300 employ-

ees work at the office.

Chevron is “taking precau-

tionary measures to reduce [its

employees’] risk of exposure,”

BYDAVIDHODARI

ANDBENOITFAUCON

Oil Slides to January 2019 Level

Analysts expect a sharper drop in prices if OPEC members fail to agree on deeper production cuts. A Chevron refinery in British Columbia.

BEN NELMS/BLOOMBERG NEWS

come at Goldman Sachs Asset

Management. “That de-risking

could mean [they buy into]

cash, Treasurys or munis.”

The new wave of demand

Monday pushed bond yields to

once-unheard-of levels. Yields

on high-grade tax-exempt 30-

year municipal bonds fell to

1.594% Tuesday, 47% lower

than in February 2019, accord-

ing to financial analytics com-

pany ICE Data Services’ Muni

Yield Curve. Bond yields fall

as prices rise.

Daniel Berger, senior market

strategist at Refinitiv, said

“there’s no end in sight” to low

muni yields. The firm, which

tracks state government-bond

yields going back to June 1981,

showed its lowest yields on re-

cord Wednesday for the second

dayinarow.

Lower yields mean less in-

come for investors and some

of them are seeking out less

creditworthy borrowers in an

effort to find higher returns.

At the same time, the falling

yields reduce borrowing costs

for municipal-bond issuers and

make borrowing easier for less

creditworthy governments and

nonprofits.

Muni-bond prices were

climbing steadily even before

coronavirus headlines spooked

investors.

Changes in the 2017 tax law

drove up demand in high-tax

states by capping the federal

deduction for state and local

taxes, making tax-exempt mu-

nis more attractive. At the

same time, the tax law re-

duced supply by placing new

limits on when governments

can issue tax-exempt debt.

Quick moves into or out of

municipal-bond investments

have become easier to execute

BYHEATHERGILLERS

Flight to Muni-Bond Debt

Sends Yields to Record Lows

COMMODITIES

Index performance, weekly

Source: Dow Jones Market Data

Note: Current week is through Wednesday.

S&P500 DAX NIKKEISTOCK

AVERAGE

–6.6% –5.8%

–4.1%

4

–6

–4

–2

0

2

%

Dec. Jan. Feb. Dec. Jan. Feb. Dec. Jan. Feb.

nually, counting dividends.

Among those individuals,

nearly 60% forecast one-year

returns between 0% and 6%,

and just under 70% predict

10-year average annual re-

turns in that same range.

Professional investors often

project returns in excess of

7.5% annually.

After stocks stumble, the

survey shows, individual in-

vestors do predict lower fu-

ture returns—but not by

much. And when stocks are

doing well, these investors

make rosier forecasts—by a

small margin.

From September through

December 2018, as stocks fell

almost 20%, the Vanguard in-

vestors’ forecasts of returns

over the coming year fell to

2.7% from 4.8%.

By February 2019, how-

ever, as the market bounced

back, investors projected that

stocks would earn 4.9% over

the next 12 months.

But, the Vanguard survey

finds, these investors don’t

tend to buy more stocks

when they become a little

more optimistic or to sell

when they turn a bit pessi-

mistic. Unlike professionals,

they often change their opin-

ions without feeling obligated

to act on them.

Of course, Vanguard’s cli-

ents might be less interested

than the general investing

public in chasing hot returns,

trading frequently or trying

to time the market.

According to Vanguard re-

searchers Stephen Utkus and

Jean Young, the typical inves-

tor in the survey is 61 years

old and has been a client for

17 years. The median account

value is about $221,000, with

about 72% in stocks. The typ-

ical annual turnover—a mea-

sure of how often an investor

moves money around—is only

10%. (Mutual-fund managers

trade at more than six times

that rate, according to Morn-

ingstar.)

S

Othe people in Van-

guard’s survey might be

unusually placid. And

individual investors, overall,

have been rewarded for their

patience so long that there is

some risk they have turned

complacent.

This is the longest bull

market on record, according

to S&P Dow Jones Indices—

running more than 131

months without a 20% de-

cline from its latest high clos-

ing price.

Over that period, stocks

have returned more than

490%, including dividends.

Last year alone, the S&P 500

rose 32%.

A big tumble would shake

that confidence.

Let’s remember, though,

that panic is rare—in markets

and in life. During the Nazi

bombardment of Britain in

World War II, most people

remained so levelheaded that

the “neurosis centres”

opened by the government to

counteract the expected ef-

fects of mass panic were sel-

dom used.

No one knows how far the

fear over coronavirus will ex-

tend or how much stocks will

fall in response. What we can

be fairly sure of is that indi-

vidual investors are likely to

be among the last—not the

first—to sell.

run—to buy even more of the

most-overvalued stocks when

their prices are rising.

O

nce performance fal-

ters, portfolio manag-

ers who owned—and

then sold—the most popular

stocks won’t be punished as

badly as those who made un-

orthodox picks. “Worldly wis-

dom,” wrote Keynes, “teaches

that it is better for reputation

to fail conventionally than to

succeed unconventionally.”

When institutions sell,

they often get rid of their

most liquid holdings first, be-

cause those are the easiest to

sell at the best price.

A survey of more than

16,000 individual investors by

Vanguard Group shows how

drastically their attitudes dif-

fer from those of big institu-

tions.

Vanguard has been repeat-

ing this survey every two

months since early 2017. The

results suggest that individ-

ual investors have become a

major force for moderation in

the financial markets.

Individuals consistently ex-

pect U.S. stocks to return

about 5% over the coming

year, the Vanguard survey

shows. That’s only half the

historical average of 10% an-

Continued from page B1

You Don’t

Have to

Sell Stocks

U.S. government-bond
yields, reversing Wednesday’s
early rise, were dragged down
to fresh all-time lows amid new
signs that the coronavirus is
spreading.
Investors initially paused in
buying Treasurys mostly be-
cause yields, which fall as bond
prices rise, dropped to record
lows Tuesday, traders and ana-
lysts said. Demand rose again
following reports of new coro-
navirus cases in places includ-
ing South America.
The yield on the benchmark
10-year Treasury
closed Wednesday
at 1.310%, down
from Tuesday’s
then-record-low close of
1.328%. The 30-year bond’s
yield fell to 1.796% from 1.803%
Tuesday.
The record-low yields in
Treasurys suggest investors see
a relatively high chance that
the Federal Reserve could cut
interest rates soon, but so far
economic indicators don’t bear
that up, said Thomas Simmons,
an economist at Jefferies LLC.
Economic fallout from the
virus isn’t likely to have a ma-
terial impact on the U.S. econ-
omy until the second quarter of
the year, and it will take more
time for that data to be dis-
seminated, Mr. Simmons said.
Fed officials next meet to con-
sider changing interest rates in
mid-March.
“The 10-year broke through
a record-low yield yesterday,
and it’s hard to see the market
going much further absent
more bad news,” he said.
Bonds of energy companies
weakened Wednesday as inves-
tors braced for more bad news
from oil and gas producers.
Chesapeake EnergyCorp.’s
bond due 2025 fell to 66.75
cents Wednesday after the
company reported a decline in
revenue, down from 72.25
Tuesday, according to data
from BondTicker.

BYMATTWIRZ

Treasurys

Climb to a

High Amid

New Jitters

CREDIT
MARKETS

MunicipalbondpricesjumpedMondayasinvestors

flockedtoless-volatileinvestmentsamidcoronavirusfears.

Daily change in S&P Municipal Bond Index

Source: S&P Municipal Bond Index

0.4

–0.4

–0.2

0

0.2

%

March 2019 ’ 20