Financial markets and the global economy have drifted into turbulent and uncharted waters, as the widening spread of COVID-19 brewed a perfect storm of all the major market shocks over the past 30+ years. Bond markets were not immune with the recent market dislocation felt far and wide – and while things appear to have somewhat stabilised, the skies are far from clear. This cements our view that fixed income should be navigated with an active perspective.
For the moment at least, we appear to have entered the eye of the storm. Central banks and governments around the world have instilled a sense of relative calm by acting swiftly and in unison to respond to the near and present economic impact of the coronavirus outbreak. The policy reaction has been unprecedented, with interest rates reduced to their zero bound, quantitative easing tools called upon, and sweeping fiscal stimulus packages announced as the scale of measures taken to stop the spread of the coronavirus threaten to impose a never-before seen shock to the global economy.
The degree and duration of the economic shock is a key uncertainty that will drive financial markets over the near and likely medium term. Navigating and deciphering the implications of the unparalleled response from policy makers adds to the complexities of the medium term outlook. In these extraordinary times, we believe that an active management approach to fixed income is essential.