Photograph of Daniel J. Ivascyn, Group Chief Investment Officer
Dan Ivascyn: I'd categorize our outlook as continuing to be cautious. I think we're in the midst of a incredibly negative economic shock, we’re probably close to the trough in terms of growth. We do expect to see a gradual recovery, at least in the base case. It may appear as a somewhat rapid recovery, at least off the bottom, but we're in a situation where it's going to take a long time to get growth back to normal, even in our base case outlook. So we do expect to see a recovery this year, but we will likely close out 2020 with negative growth rates here in this country on the order of negative 6% or so, it could even be a little bit lower than that. With the shock to the European economy and other more fragile economies globally, even more severe than what I just described. But I think the key point is that this is going to be an uneven recovery. It's going to be a recovery that takes several quarters to get us back closer to growth levels that we experienced towards the end of 2019, and that's assuming things go reasonably well from a health perspective.
It’s important to note there still remains remarkable uncertainty relating to the virus itself. The potential for this virus to return in a meaningful manner, especially as economies around the globe attempt to open. So again, our view feels somewhat consensus-like in terms of our economic outlook relative to other market prognosticators. But I think it's important to have a healthy degree of humility, in terms of trying to forecast in such a highly uncertain environment.
Now the market and market functioning has recovered significantly, versus what we experienced in March. But I'd describe both fixed income markets or financial markets more broadly as being quite fragile. These markets have benefited from a significant policy response. In the case of the United States, it's been a response not only from the Fed, but from the Treasury, as well as the Fed and Treasury working in partnership to help stabilize markets. And at least in the higher quality segments of the investment universe, they've been reasonably successful. But again, given the very cautious economic outlook, given the extreme uncertainty around the virus's impact on society more broadly, I think it's very, very important to focus on the fragility of this recovery. There absolutely are scenarios where equities perform poorly, even scenarios where equities test the prior lows. And under that type of environment, despite the fact that there's some moderate support from central banks in regards to credit-related assets, you absolutely can get into a much more challenging environment, and you can get into a challenging environment where you see further liquidity deterioration as well. So that's the first point; stability, but still significant fragility.
Also, I think it's important to note from a fixed income investors perspective, that in high-quality segments of the market, yields are very low. In many areas of the high-quality investment universe, yields are low where they're not even keeping up with significantly reduced inflation expectations. In other areas of the world, you can't even achieve a positive yield in higher-quality segments of the market. So relative to where we've been over the course of the past several years, we're in a very, very challenged yield environment. When you look at various passive alternatives or popular indices out there that focused on the core portion of the opportunity set, yields are at or near historical lows, creating significant challenges for end investors. So again, that's the more negative news; fragility in low yields, so a challenge in generating income.
The positive news is that we continue to be in an environment where there's tremendous issuance needs, and there's considerable ongoing dislocation in certain segments of the global opportunity set. So although segments of the market, typically segments of the market well represented by popular indices, have quite depressed yields, and yields have gone even lower in many cases since we spoke last. When you open up the opportunity set more broadly and around the globe, there's some interesting pockets of opportunity. And in fact, in some of those areas, yields look quite attractive in the context of where they've been over the course of the last few years. So significant bifurcation across markets, still, we think it warrants a defensive mindset. But the opportunity set is looking interesting and attractive, as long as you remain with an eye on playing good defense.
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