Stress in financial markets is now the most severe since the financial crisis — and rapidly getting worse

Reuters

• A measure of financial-market stress has weakened at its fastest pace since the 2008 financial crisis, Bloomberg reported Monday.
• The rout may just be beginning, as data from Bloomberg’s US Financial Conditions Index hasn’t yet accounted for Monday’s market decline.
• Stocks traded roughly 7% lower as mounting coronavirus fears and a new oil price war drove massive sell-offs.
• The widening gap between US Treasury yields and junk bond yields signal prolonged stress for firms looking to raise cash amid the outbreak.
• Investors should monitor first-quarter reports for signs of unhealthy cash reserves and heightened risk of default, Marc Ostwald, chief economist at ADM Investor Services International, told Bloomberg.
• Visit the Business Insider homepage for more stories.

Financial markets haven’t seen conditions deteriorate this quickly since the collapse of Lehman Brothers in 2008, and the situation is only worsening, Bloomberg reported Monday.

The firm cited a proprietary measure of financial stress, which has weakened quickly in a situation not seen in 12 years. The decline has come as the epidemic has pummeled global supply and demand through quarantine orders and factory shutdowns. Technical recession in the US and Europe is now a “distinct possibility,” PIMCO warned Monday.

The sharp uptick in market stress doesn’t yet include data from Monday’s turmoil. US stocks plunged roughly 7% on Monday’s open as investors digested a new oil-price war and continued virus risks. The initial sell-off was severe enough to trigger a 15-minute trading halt, the stock market’s first since 2008. Investors flooded Treasury bills and pushed the yield curve below 1% for the first time in history.

The gap between high-risk bond yields and US Treasury yields is the widest since 2016, Bloomberg reported, signaling decreased faith in companies being able to repay debts. Cracks in the US credit market “could lead to sharp tightening of financial conditions that feeds back into the real economy,” Joachim Fels, global chief adviser at PIMCO, wrote Monday. 

Read more: Goldman Sachs reveals the 10 best stocks to buy now for a market comeback from the coronavirus-driven plunge

First-quarter reports will bring the first update to how companies are defending against coronavirus’s fallout. Firms will need to show healthy cash flow if they want to refinance loans and raise new capital, Marc Ostwald, chief economist and global strategist at ADM Investor Services International, told Bloomberg.

Missing the mark could kickstart a chain reaction of bankruptcies and further drag on financial market health, Ostwald added.

Now read more markets coverage from Markets Insider and Business Insider:

OIL MARKET MADNESS: Here’s how a crucial breakdown between Russia and other major producers caused the biggest plunge in 29 years and tanked stocks

S&P 500 plunges 7% in minutes, trading halted marketwide as financial contagion worsens

Coronavirus sales surge: How a plant-based cleaning startup is adapting to a 400% increase in demand for its top sellers