Volatility Image Shocks & Bonds

Insights to help navigate market volatility and economic impact
amid the COVID-19 pandemic

"This is an extraordinary period, both a health and an
economic crisis that is unprecedented in financial history."

SKL Circle

"The key point, given the uncertainty of the economic path, is portfolio construction has to be built on a solid foundation. You want to make sure that the number-one building block of your portfolio are securities that can endure a sustained period of economic weakness, should it become the case, but can also benefit should you get a recovery in a shorter period of time."

–Western Asset CIO Ken Leech

Market Impact of COVID-19

Both the US and global economies entered the crisis with strong fundamentals.

The US economy is well positioned to weather a temporary economic slowdown, especially considering the Fed’s swift policy response and the $2 trillion fiscal stimulus under the CARES Act that authorizes payments to individuals beginning in mid-April 2020.

A resumption of economic activity could come swiftly.

This experience is not the same as the global financial crisis (GFC); while the timing of the voluntary business shutdown is still unknown, we believe the global growth shortfall will be transitory. Currently, we see a U-shaped recovery with the resumption of economic activity commencing in late 2Q20 and 3Q20, then picking up steam in 4Q20. We hope to be back to trend-line growth as we enter 2021.

Public safety will be balanced with economic pain.

While business closures and social distancing are intended to save precious lives, the near-term economic impact may be very painful. The massive efforts already seen by governments and central banks to provide fiscal and monetary stimulus should help mitigate some of the economic damage.

Wall Street Growth Forecast Chart 1

Our base case calls for a resumption of economic activity—as social distancing and work restrictions are lifted—beginning in late 2Q20, then picking up steam through the end of the year, and reaching trend-line growth in early 2021. The blue line shows alternate scenarios given the uncertain outcome; our latest outlook is most closely aligned with the middle upward sloping blue line.

Wall Street Growth Forecast Chart 2

We expect the economic impact of COVID-19 to be swifter and deeper than what was experienced over a decade ago during the GFC, but we also see a faster turnaround and resumption of beneficial economic activity once the virus is contained.

Coronavirus Task Force

Highlighted Article
In January 2020, as COVID-19 spread in China, Western Asset assembled a cross-disciplinary task force to analyze the virus and its threat to the global economy.

Shocks & Bonds Blog Posts

July 08, 2020
By Mark Hughes
As markets are currently coping with conflicting headlines of buoyant markets, viral outbreaks and a choppy economic restart, the Western Asset Coronavirus Task Force wanted to share our take on the resurgent growth of COVID-19 in the US as well as the outlook for emerging markets (EM).

May 27, 2020
By Quentin Lafosse, Wilfred Wong

May 26, 2020
By Harris A. Trifon
May 26, 2020
By Dean French

May 21, 2020
By Judith Ewald, Thea Okin
May 20, 2020
By Robert O. Abad

May 14, 2020
By Andreas Billmeier, PhD, Richard A. Booth

May 13, 2020
By Bonnie M. Wongtrakool
May 12, 2020
By Andreas Billmeier, PhD, Richard A. Booth

May 08, 2020
By Michael J. Bazdarich, PhD
April 30, 2020
By Andreas Billmeier, PhD

April 29, 2020
By Michael J. Bazdarich, PhD
April 27, 2020
By Richard A. Booth

April 23, 2020
By Alan Nadel, Alex Warren
April 22, 2020
By Michael Linko

April 16, 2020
By J. Gibson Cooper, René Ledis
April 15, 2020
By Chia-Liang Lian, Kevin X. Zhang

March 31, 2020
By John L. Bellows, PhD

March 19, 2020
By Sebastian Angerer, Ivor Schucking

March 18, 2020
By Anthony Kirkham
March 18, 2020
By Greg Handler, Ion Dan

March 17, 2020
By J. Gibson Cooper, René Ledis
March 16, 2020
By John L. Bellows, PhD

March 04, 2020
By Porntawee Nantamanasikarn, PhD
March 03, 2020
By John L. Bellows, PhD

February 27, 2020
By Walter E. Kilcullen
February 26, 2020
By Chia-Liang Lian, Kevin X. Zhang

Additional Resources

Global Outlook Thumbnail
Second Quarter 2020
Summary of the key drivers behind our global outlook, how we’re positioned in broad market portfolios and a more detailed description of where we see value in today’s markets.
Global Credit Monitor Thumbnail
Second Quarter 2020
Check out our latest holistic assessments of fixed-income trends, technicals and relative value across the entirety of the global credit market.
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Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
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