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Fixed Income

2021 Outlook: The Uneven Recovery

November 2020 - 9 min read

The recovery in many ways looks real and durable—but it also looks uneven and, in some cases, quite unpredictable. In this discussion, investment professionals from the public and private markets discuss where they expect to see risks and opportunities in the year ahead.

Christopher Smart: 2020 has been a year unlike anything we’ve seen. After one of the longest expansions on record, the global economy suffered the most severe shock in recent history—followed by a synchronized government response that defied most expectations. Let me start with a sense of where we are in the bounce back, and why we're looking at an uneven recovery. Ricardo, are you worried that governments will take their foot off the pedal too soon? 

Ricardo Adrogué: That’s certainly a concern for us, and one of the biggest risks we face from a sovereign perspective. Global debt was already rising prior to the pandemic and has gone up quite a bit since its onset. As a result, we think there is a possibility that populations around the world will pressure their governments to step back their debt issuance. If that happens, we would expect the recovery across emerging markets to be weaker in the year ahead.

Christopher Smart: What about in the public fixed income markets more broadly—Martin, are you anticipating a string of defaults and bankruptcies in 2021?

Martin Horne: We seem to be at a mid-point of sorts when it comes to the pandemic—while there has been news around a vaccine, the timing and adoption remains to be seen, meaning there is still much uncertainty around when consumption patterns may begin to normalize. Against this backdrop, while defaults may increase going into 2021, we believe they will remain much lower than peak-COVID forecasts.

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