Q -How did the bond markets cope with this sell-off?
PS -Bond markets are much less liquid than stock markets. This trend has been reinforced in recent years by the stricter capital requirements imposed on banks. This has led to massive distortions in bond markets in recent days, especially for corporate bonds. In other words: In a dried-up market, there were too many sellers and virtually no buyers. As a result, some of the largest global bond ETFs traded at significant discounts to their net asset value, the bid-ask spreads for bonds jumped by a factor of ten in some cases, and individual money market funds had to be supported with liquidity injections from banks. In the end, the ECB and the US Federal Reserve stepped in and massively expanded their bond purchase programs.
Q -… which leads you to what opportunities?
PS -Bonds of companies with high credit ratings have seen setbacks of 20–25% in some cases in the last few days, which in individual cases is almost equivalent to the price declines of the shares of these companies. This is an enormous dislocation, which makes no sense in this way. The main reason for this is probably technical factors, i.e. the dried-up liquidity in the bond market. This creates interesting opportunities. Of course, much will depend on how quickly the corona situation can be contained and political sanctions can be reduced. We do not have much time here.
Q -As a politician, where would you invest money now? What would be your priorities?
PS -In my opinion, a calm, well-considered risk assessment is necessary. The priorities should be:
1. Rapid and significant increase in the number of tests performed. If we do not know who has the virus, where it is and how widespread it is, we will not be able to combat it in a targeted manner.
2. Massive increase in intensive care capacities (medical staff, intensive care beds, ventilators, protective suits, etc.) and research budgets for effective drugs and vaccines
3. Special protection for the elderly and vulnerable risk groups, as proposed by Prof. Rümelin (keyword: cocooning)
At the same time, the younger population should be allowed to work again and the economy should be opened up and boosted as quickly as possible. And structured in such a way that the risk of infection continues to be controlled, as has been successful in Korea and Taiwan, for example. In addition, the following must apply: Anyone who tests positive or shows symptoms goes directly into self quarantine. And, of course, this crisis is also a great opportunity to digitize healthcare systems nationally and internationally, to improve networking across countries and to fully develop progress in the field of “data science” in this vital area as well.