Quarterly insight from our fixed income teams to help clients navigate the risks and opportunities ahead.

Themes in Focus, June 2020

Please see page footer for video disclaimer

By Jim Cielinski, Global Head of Fixed Income

Key takeaways

  • The severity of the economic impact from the COVID-19 crisis is as bad as we thought, with Q2 likely to be one of the worst quarters of growth on record.
  • But markets respond to change, and the potential for near-term growth and repair as economies come out of lockdown, coupled with aggressive fiscal and monetary stimulus, is allowing markets to seemingly disconnect from the economy. Without another shutdown, however, what markets are beginning to price in is understandable.
  • For those that do have a longer horizon, if we can get growth going again, we might be able to look at this in the rearview mirror and say it was one of the sharpest but also one of the shortest recessions on record.
  • Explore our investment teams' insights below and read Jim's recent paper "After the Virus: A Binary World" here.

Video transcript

Hello, I’m Jim Cielinski. And we’ve almost run out of superlatives to describe the current market and economic environment. But when I think back to when the COVID-19 crisis unfolded in Q1, we were recommending that investors focus on three critical questions and it’s worth revisiting those today. One was, what’s the policy response going to be; two was, what is the likely duration of this shutdown; and three, what was the likely severity of the shutdown?

First of all on policy, so policy makers have panicked and they’re still panicking. We have seen the trifecta of policy, meaning fiscal boost is coming. We’ve had enormous budget deficits opened up, but we’ve also seen on the monetary side in QE, balance sheet expansion is going to exceed $6 trillion by the time this is over. And we overuse the word unprecedented, but this is truly a staggering number. And then third, policy rates in the G7 have hit record low levels. Almost everywhere is approaching zero or below. And so this has also allowed policy makers to do the fourth and rather magical kind of policy initiative which is to get investors to believe that they fully have their back and there’s more to come if needed.

On the duration and the severity, the severity, it’s as bad as we thought it would be. Q2 will be absolutely horrible, one of the worst quarters of growth on record. And it will be enough to drag the full-year growth across the globe to about -5% or -6% this year. So the damage has really been painful and that’s why the duration of the shutdown was always so critical. You can’t have this last for very long before you really start to impart, I think, permanent damage to the economy.

And so on the third question of duration, I think that’s probably the most positive development. We are seeing economies come out of lockdown and that’s important. So technically, what we could see if there is not another shutdown, is that the recession ends in the second quarter and that by June, we’re back in growth mode. But to get back to where we were a year ago, it’s going to take at least another one-and-a-half to two years from today. And for some sectors, they might never get back to where they were. And so I think it’s important to keep that in mind.

Markets, though, do respond to change and the mere fact that growth will be recovering, I think, is what’s allowing – in conjunction with the policy response – markets to seemingly disconnect from the economy. But, look, markets always bottom in recessions and so you always get bear markets ending in recessions. And markets do predict the turn and if you believe that we won’t have another shutdown, you can believe in what markets are beginning to price in today.

The real risk is a wave of kind of rolling peaks or second peaks of the virus. But to shut down economies again, I think, is almost out of the question. And that’s for several reasons. One, the political fortitude isn’t there, but two, citizens’ fortitude isn’t there. Three, we’ve learned a lot about how the disease, I think, spreads, who’s most at risk and how to protect those vulnerable parts of the population. But we’ve also made significant advancements in contact tracing, in medication and so we’re better able to deal, I think, with the consequences.

And also really important is the idea that those economies that were in complete lockdown actually have not exhibited statistically a lot better results than those economies that are observing social distancing, wearing masks, washing hands regularly, and so it’s becoming more apparent, I think, that there are ways other than locking down an entire economy to controlling the virus. And this is what will allow growth even though growth is going to be extraordinarily uneven, it will allow growth and it will allow some repair to take place.

What does this mean for some of the fixed income markets? Well first of all on rates, look, central banks don’t want rates to go up. They’re buying enough of the bond market to probably preclude that from happening in any meaningful way near term. I think the financial repression that you get through really low short-term rates but also really low long-term rates is something they’d want to keep in place.

On the credit side, what we’ve seen is liquidity returning and what we’re likely to see going forward because corporations had a lot of debt on the balance sheet, they will now go into a term out and then delever type of mode. And so by terming out debt, they’re removing the liquidity risk that might come in having to meet near-term maturities in a second wave, for example. And they now have a lender of last resort in central banks who are actually buying and funding corporations. And so when I combine all these together, I look at an economy which is still challenging, it will create some defaults. There’s no doubt we’re going to see more of those. But for those that don’t default, what you’re likely to see is a trend toward deleveraging and as that occurs with the liquidity backstop, I think corporates are well poised in this kind of environment, where you get an uneven and very slow recovery, to do well.

Mortgages and asset backed, so parts of that market really haven’t seen the protection that other parts have. But again, we’ve seen quick recovery in those sectors that are more interest rate sensitive like housing, and so this, I do believe, should be enough to kind of carry a lot of those segments of the market, I think, tighter. And so I do see the negative interest rate or really low interest rate environment in this context to providing an additional impetus, I think, for investors to seek out yield with some safety. And combining those things means that some non-government securities, particularly higher quality, should see good demand but also good protection from policy makers.

So again, we’re not out of the woods. There is significant risk that the virus spreads or that we have to lock down certain components of the economy. I think the risk is lower than it was because we’re not likely to lock down the whole economy. But for those that do have a longer horizon, if we can get growth going again, we might be able to look at this in the rearview mirror and say it was one of the sharpest but also one of the shortest recessions on record.

Thank you.


Quantitative Easing (QE) is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the markets.

The Group of Seven (G7) is an international intergovernmental economic organization consisting of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.

Term Out The recapitalization of short-term debt to long-term debt on a company’s balance sheet and/or extending the debt maturity profile of a borrower during refinancing.

Mortgage-backed security (MBS) security which is secured (or ‘backed’) by a collection of mortgages. Investors receive periodic payments derived from the underlying mortgages, similar to coupons. Similar to an asset-backed security.

Asset-backed securities (ABS) A financial security which is ‘backed’ with assets such as loans, credit card debts or leases. They give investors the opportunity to invest in a wide variety of income-generating assets.

The opinions and views presented are as of the date published. They are for information purposes only and should not be used or construed as investment, legal or tax advice or as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. Nothing in this material shall be deemed to be a direct or indirect provision of investment management services specific to any client requirements. Opinions and examples are meant as an illustration of broader themes, are not an indication of trading intent, and are subject to change at any time. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. No forecasts can be guaranteed and there is no guarantee that the information supplied is complete or timely, nor are there any warranties with regard to the results obtained from its use. In preparing this document, Janus Henderson Investors has reasonable belief to rely upon the accuracy and completeness of all information available from public sources. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.

Not all products or services are available in all jurisdictions. The distribution of this material or the information contained in it may be restricted by law and may not be used in any jurisdiction or any circumstances in which its use would be unlawful. The contents of this material have not been approved or endorsed by any regulatory agency. Janus Henderson is not responsible for any unlawful distribution of this material to any third parties, in whole or in part, or for information reconstructed from this material.

This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

In Europe, issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors  Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital  Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and  Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial  Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

Advisory services in the U.S. are provided by SEC registered investment advisers that are subsidiaries of Janus Henderson Group plc. In Canada, products and services are offered through Janus Capital Management LLC only to institutional investors in certain jurisdictions.

Issued in (a) Singapore by Janus Henderson  Investors (Singapore) Limited, licensed and regulated by the Monetary Authority of Singapore. Janus Henderson Investors (Singapore) Limited Company Registration No. 199700782N. This advertisement or publication has not been reviewed by Monetary Authority of Singapore. (b) Hong Kong by Janus Henderson Investors Hong Kong Limited, licensed and regulated by the Securities and Futures Commission, (c) Taiwan R.O.C by Janus Henderson Investors Taiwan Limited (independently operated), licensed and regulated by the Financial Supervisory Commission R.O.C. Suite 45 A-1, Taipei 101 Tower, No. 7, Sec. 5, Xin Yi Road, Taipei (110).  Telephone: (02) 8101-1001.  Approved SICE licence number 023, issued in 2018 by Financial Supervisory Commission, (d) Japan by Janus Henderson Investors (Japan) Limited, regulated by Financial Services Agency and registered as a Financial Instruments Firm conducting Investment Management Business, Investment Advisory and Agency Business and Type II Financial Instruments Business, (e) Australia by Janus Henderson Investors (Australia) Limited ABN 47 124 279 518 and its related bodies corporate including Janus Henderson Investors (Australia) Institutional Funds Management Limited (ABN 16 165 119 531, AFSL 444266) and Janus Henderson Investors (Australia) Funds Management Limited ABN 43 164 177 244, AFSL 444268 (f) the Middle East by Janus Capital International Limited, regulated by the Dubai Financial Services Authority as a Representative Office. No transactions will be concluded in the Middle East and any enquiries should be made to Janus Henderson.

This material is not to be reproduced or distributed to persons other than the recipient. Janus Henderson, Janus, Henderson, Perkins, Intech, Alphagen, Knowledge Shared, Knowledge. Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © Janus Henderson Group plc.

C-0520-30940 05-15-21

Close transcript

Insights From Our Global Teams


Co-Head of Global Bonds Nick Maroutsos states that even without negative interest rates, bond portfolios must work harder to achieve desired results.


Greg Wilensky, Head of U.S. Fixed Income, discusses the importance of identifying and diversifying risk factors in bond portfolios.


Credit portfolio managers John Lloyd and Tim Winstone argue that markets are fixated with the near-term expansion in debt levels when a deeper look at credit fundamentals shows a more nuanced picture.


The Securitized Debt team discusses its positive long-term outlook for U.S. structured securities in higher-quality, seasoned and shorter-dated exposures.

Our Fixed Income Capabilities

Janus Henderson Fixed Income provides active asset management solutions to help clients meet their investment objectives. Over the past four decades, our global investment teams have developed a wide range of product solutions to address clients’ varied and evolving needs. From core and multi-sector investing to more focused mandates, we offer innovative and differentiated techniques expressly designed to support our clients as they navigate each unique economic cycle. The capabilities of these teams are available through individual strategies or combined in custom-blended solutions.

While shared knowledge across teams and regions encourages collaboration and the debate of investment ideas, each team retains a defined level of flexibility within a disciplined construct. Our portfolio construction processes are governed by a rigorous risk management framework with the intent of delivering stronger risk-adjusted returns. Further, we believe transparency is the foundation of true client partnerships; we seek to earn and maintain our clients’ confidence by delivering robust and repeatable investment processes and by providing firsthand insights from our investment professionals.

Fixed Income Teams Org Chart

June 2020

Subscribe for relevant insights delivered straight to your inbox

These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. Any securities, funds, sectors and indices mentioned within this article do not constitute or form part of any offer or solicitation to buy or sell them.


Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.


The information in this article does not qualify as an investment recommendation.


For promotional purposes.