The spread of the Covid-19 disease and the necessary lockdown and social distancing measures adopted to contain it have triggered a contraction of the global economy of unparalleled magnitude. The reaction to the uncertainty and risks surrounding the initial stages of the Covid-19 outbreak led to serious liquidity strains in global financial markets.
The traditional flight-to-quality behaviour among investors during stress episodes was followed by an unprecedented “dash for cash” in which even US Treasuries became illiquid. The lockdown measures adopted in many countries in the following weeks halted economic activity in several sectors, triggering massive increases in (observed and disguised) unemployment and plummeting corporate sales.