Every quarter, our GFICC senior investors gather to formulate a consensus view on the near-term fixed income markets. The result of this is a strategy roadmap for the coming three to six months.
 

Our latest macro view

• Global economic activity in both the service and manufacturing sectors has almost come to a standstill amid the pandemic and continued social distancing measures to contain its spread. The risk of a global recession has become our base case, and we have raised the probability of recession to 55% from 25%¹.
  
  
• With economic shocks to both the supply and demand sides, global growth will likely slow in the first and second quarters before rebounding over the second half of 2020. We lowered the probability of Sub Trend Growth to 30% from 55%¹.
  
  
• Against the economic backdrop, small- and medium-sized enterprises could face an operating cash-crunch while part-time and low-wage workers could struggle to replace lost income. 

GFICC’s scenario probabilities and investment expectations: 2Q 2020³

Central banks and governments have acted swiftly
 

• The market uncertainties from the outbreak are expected to reinforce the dovish bias for central banks. In response, central banks have moved towards aggressive monetary easing. The US Federal Reserve (the Fed) lowered the federal funds rate to a target range of 0%-0.25% via two emergency rate cuts. The Fed also announced unlimited quantitative easing (QE) to help restore market liquidity⁴.
  

Substantial fiscal and QE packages unveiled⁷

Tilt towards quality while seeking shelter²
 

• In the view of our GFICC team, DM government bonds and agency mortgages⁸ are preferred for their high-quality duration as well as reserve currencies, including Japanese yen, Swiss franc, euro and the US dollar.
  
  
• IG corporate credit, A and BBB-rated, could offer incremental quality yield⁵.
  
  
• High-quality securitised⁸ debt could also be a potential source of income as consumers are entering this slowdown in a strong fiscal position.
  

Fixed income annual returns and intra-year declines⁹

Past performance is not a reliable indicator of current and future results.

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Conclusion

While central banks and governments have acted swiftly to help smooth the functioning of markets and economies, volatility will likely persist as new infected cases continue to rise. A well-diversified⁶ fixed income portfolio, with a tilt towards quality, could help build resilience as investors seek shelter from a pandemic-driven market storm.

Access Portfolio Insights Publication: Our latest global fixed income views

1. Source: J.P. Morgan Asset Management’s GFICC Investment Quarterly (IQ). As of 11.03.2020. Opinions Estimates and forecasts may or may not come to pass. Provided for information only. These represent GFICC team’s views under normal market conditions subject to change from time to time.
2. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
3. Source: J.P. Morgan Asset Management’s GFICC Investment Quarterly (IQ). As of 11.03.2020. Opinions, estimates, forecasts, projections and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. There can be no guarantee they will be met. Above-trend: Global gross domestic product (GDP) growth >3.5%, inflation >2%; Sub-trend: Global GDP growth 2-3.5%, inflation 0-2%; Recession: Global GDP growth <2%, inflation <0%; Crisis: A disorderly movement in markets causes systemic impact and tail risk. Provided for information only and not to be construed as investment recommendation or advice.
4. Source: “Federal Reserve issues FOMC statement” released on 23.03.2020 and 03.03.2020.
5. Yield is not guaranteed. Positive yield does not imply positive return. Past performance is not a reliable indicator of current and future results.
6. Diversification does not guarantee investment return and does not eliminate the risk of loss.
7. Source: Bloomberg; as at 24.03.2020. *US QE total amount estimated, Reserve Bank of Australia amount of buying estimated. Does not include QE programme recently announced by Bank of Canada. QE: quantitative easing.
8. Securitisation is the process in which certain type of assets, such as mortgages or other types of loans, are pooled so that they can be repackaged into interest-bearing securities. Examples of securitised debt include mortgage-backed securities which are debt securities backed by mortgage-related financial assets. These assets include residential and commercial mortgage loans.
9. Source: Bloomberg Barclays, FactSet, J.P. Morgan Asset Management. Returns are total returns based on Bloomberg Barclays Global Aggregate USD Index. Intra-year decline is the largest peak to trough decline during the respective year. Returns shown are calendar year returns from 2003 to 2019. Past performance is not a reliable indicator of current and future results. Data reflect most recently available as of 31.03.2020.

This content represents our GFICC team’s current view and overall strategy provided for information only based on current market conditions not taking into consideration any specific investor’s investment objective and risk appetite. Not to be construed as investment recommendation or advice.

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