Russell Investments survey: Fixed income managers curb their enthusiasm for market recovery

43% of respondents say the market won’t revert to a pre-COVID 19 level until 2022.

SEATTLE, June 19, 2020 —Russell Investments’ quarterly survey of fixed income managers found 43% do not expect the global economy to revert to pre-COVID 19 levels until 2022. While 46% of the remaining 68 bond and currency managers who responded to the survey expect the global economy to revert earlier, many of these more optimistic managers place the timing well into the second half of 2021.

In addition, despite the unprecedented levels of stimulus unleashed by central banks and governments in the second quarter, survey respondents listed the “speed of recovery in the global economy” as their top concern at mid-year 2020.

“Markets reacted largely positively to the stimulus and fixed income managers are bullish on risk assets in the long run, but our survey shows they expect to see a much slower recovery in the global economy than initially expected,” said Miguel Ovalle, fixed income research analyst at Russell Investments.

Other key findings in the quarterly survey, included:

  • 70% of rates managers expect the U.S. Federal Reserve (Fed) to engage with yield-curve control, starting as soon as Q2 2020. 50% of these respondents expect yield curve-control for at least three years.
  • The consensus agreed the Fed will not move interest rates into negative territory, and 74% of managers don’t expect the next rate hike before 2023 (which puts them in lockstep with Fed Chairman Jerome Powell’s June 10 statement on the matter.)
  • With little consensus, the weighted average for the core consumer price index (CPI) in the U.S. stands at 0.5% for the next 12-months, which is the lowest level since the firm initiated its quarterly survey in 2016. 27% of managers expect to see a disinflationary U.S. economy in the next 12 months.
  • Investment-grade credit: 73% of respondents expect spreads to tighten in the next 12 months, marking the highest rate since inception of the survey in 2016. 
  • Global leveraged credit: 64% of respondents believe that U.S. high-yield bonds should deliver the best risk-adjusted return in the next 12 months. Managers also see energy, retail and autos as the areas where credit risk may not be correctly priced in.
  • Europe: Regarding sovereign bond yields, 70% of respondents expect periphery spreads vs. German bunds to tighten over the next 12-months. Also, 75% of managers expect the euro to be in the wide 0.96 to 1.10 range.
  • Emerging markets (EM): Hard currency (HC) emerging market debt managers expressed preference for Ukraine and Mexico as the countries with the highest expected return, followed by Indonesia and Brazil. China and the Philippines are the top two underweight countries. In addition, default expectations remain low for EM countries as respondents expect fewer than 10 countries to default in the next 12 months. 32% of local currency EMD managers expect FX to be a detractor in the next 12 months, which is the highest number since the firm initiated its survey in 2016. Only in November 2016, did surveyed managers express such a negative view on FX.
  • Securitized credit:: The relative value of securitized credit looks at mid-year attractive compared to corporate credit and other risk assets. These markets are seeing fundamental green shoots with housing data coming in stronger than expected, employment showing signs of improvement, and local economies reopening around the nation.

More information on the survey is available here.

About Russell Investments

Russell Investments is a leading global investment firm providing tailored solutions and services to institutions and individuals through financial intermediaries. Russell Investments is dedicated to improving people’s financial security, leveraging an 83-year client-centric heritage rooted in investment innovation. The firm is the fourth-largest adviser in the world with $270.1 billion in assets under management (as of 3/30/2020) and $2.55 trillion in assets under advisement (as of 9/31/2019) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 21 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.

Steve Claiborne, 206-505-1858,