There have been all sorts of way to lose money on the coronavirus panic. Stocks, obviously, with the S&P 500 down 10% over the last six days, and some stocks—say, Tesla—doing even worse. Oil. Italian vacation plans. You name it. Obviously, at times like these—you know, when everything is perfectly contained and there’s nothing at all to worry about, just ask Mike Pence—people flock to bonds, with Treasuries hitting record low yields every day. Just hopefully not these bonds.
The idea behind pandemic bonds, issued by the World Bank in 2017, is simple: They pay investors a solid return, but if a pandemic breaks out, the principal is redirected to help low-income countries pay for their emergency response…. Pandemic bonds are most likely to be triggered just as equities tumble and concerns about companies’ ability to finance themselves come to the fore, as now. In short, the asset class is uncorrelated with wider markets—except at the exact moment when that matters most. Then it is suddenly very correlated.