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

06.04.2020

Is the Worst Behind Us?

The 10-year Treasury yield broke through a key threshold yesterday closing at 0.77%, its highest in eight weeks, and ending…

06.03.2020

Bank Loans vs. High Yield: Is One Safer Than the Other?

Year-to-date, bank loans and high yield bonds have been subject to a variety of market forces similar between the two…

06.01.2020

Don’t Mind the Gap

On the surface it looks disjointed. We are in the midst of what is likely the worst recession since the…

05.28.2020

The Confluence of Small-Cap Stocks and the Economy

Small businesses are often thought of as the backbone of the U.S. economy. Long before the coronavirus, the Russell 2000…

05.20.2020

There’s FAAMG and Everyone Else

Since the S&P 500 bottomed on March 23rd, the stock market has taken off while economic fundamentals have worsened. As…

05.14.2020

It’s Not Bad News for All Energy Stocks

With the steady stream of negative economic data, record-shattering unemployment figures, and ballooning government deficits, it has been hard to…

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 >