Brighter Lights at the End of a Shorter Tunnel

May 22, 2020 | Ben Mohr, CFA, Director of Fixed Income

Biotech company Moderna’s announcement earlier this week that its coronavirus vaccine successfully helped healthy adults produce antibodies against COVID-19 sent the S&P 500 up 3% and the 10-year Treasury yield rebounding from 0.64% to 0.73% on Monday. In this pandemic, the last week of March marked a pivotal turning point when investors started seeing some light at the end of the tunnel. That week was when new infections and hospitalizations started peaking and declining in Italy and Japan, soon to be joined by New York and Washington state. That week also coincided with the Federal Reserve’s and U.S. Treasury’s — later followed by Congress’s — announcement of their substantial stimulus. Credit spreads have gradually been tightening ever since as stimulus ramped up, a number of vaccines and treatments reached Phase I and Phase II clinical trial milestones, and more recently, various states have started to reopen. Moderna’s favorable results added fuel to this positive sentiment and the market’s upswing.

In this newsletter, we examine the evolution of credit spreads and yields in 2020 to gauge the attractiveness of holding investment grade and sub-investment grade credit. Vaccine development is central to assessing the markets today as it is the ultimate permanent solution, and we detail the prospects of various vaccine candidates as well as discuss how investors should allocate to credit in light of vaccine progress in conjunction with key market metrics. Although the vaccine is a permanent solution, fiscal and monetary stimulus have proven to be critical for mitigating damage to the economy and markets in the interim and are still integral to assessing the markets today. We take a closer look at these lifelines from the U.S. government in an attempt to answer the all-important question: how much runway is there with this stimulus? The hope is that current programs coupled with any future policies will be sufficient to sustain and ultimately revive the economy until a vaccine allows for complete resumption of economic activity. Lastly, we dive into the fallen angels (bonds downgraded from investment grade to sub-investment grade), defaults, and bankruptcies that are threatening the credit markets right now and how to address these as investors. Throughout this discussion, we highlight three perspectives that are critical to measuring the attractiveness of an investment or an asset class: valuations, technical factors, and fundamentals.

Read > Brighter Lights at the End of a Shorter Tunnel


The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Ben Mohr, CFA
Director of Fixed Income

Get to Know Ben

Related Content


Defined Contribution Plan Legislative Update – 4Q 2020

While legislators have been focused on negotiating the next round of stimulus and dealing with the implications of the recent…


The Dollar Returns to Trend (and Could Go Lower)

The dollar has enjoyed an impressive run during the last few years on the backs of trade restrictions, off-cycle expansionary…


Welcome to Lockdown 2.0

As the market and world-at-large were elated by Pfizer’s announcement of positive trial results for its COVID-19 vaccine this week,…


What Does the Biden Win Mean for Financial Markets?

On Saturday, November 7th, Joe Biden was declared the winner of the presidential election and will become the 46th president…


Early Voter Turnout

Of the many reasons the 2020 election may make history, expected record voter turnout is perhaps the best. By October…


Record Growth During Third Quarter, but Will It Continue?

In this week’s chart of the week, we look at the estimated growth of Gross Domestic Product (GDP) — the…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >