Bursting Bubbles, Economic Shutdowns, Fed Bazookas, and Historic Changes
- The COVID-19 pandemic wasn’t the cause of the global meltdown; it was a catalyst, given how many asset classes were priced for perfection. The price of investor complacency will be steep, but after waves of forced (or indiscriminate) selling, potential opportunities for active managers should grow.
- Following rate cuts, quantitative easing (QE), repo activity, and other monetary programs, the Federal Reserve is prepared to enlarge its record balance sheet further to boost liquidity as the likelihood of a deep recession increases.
- Nearly all sectors of the municipal market will be impacted at some level. While supply in the primary and the competitive markets was non-existent as of April 2, we anticipate longer term investors will eventually find buying opportunities in high grade quality bonds. Other bonds are going to have a very difficult time, especially expensive malls backed by tax free bonds or ambitious rail projects.
- It will be difficult to predict when relatively normal liquidity will return to the muni market. A lot will depend on when investors feel more confident, but we believe demand for high grade municipals could resume this summer as demand should overwhelm supply.
The commentary is the opinion of the subadviser. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
Past performance is not indicative of future results.