Debbie Cunningham, Chief Investment Officer of Global Liquidity Markets at Federated Hermes.
What is your outlook for 2021?
The outlook we have for 2021 mainly stems from a couple factors. Number one is an increasing amount of supply in the short-term markets. And we do believe there will be a fiscal stimulus package that either happens before the end of this year or early in 2021, and much like we saw with the CARES Act in the middle part of 2020, that will require an increasing amount of treasury securities, treasury bills in particular, in order to finance that fiscal stimulus. So that increasing supply with a similar amount of demand should cause yields within a certain range to be a little bit higher.
We also believe that with a vaccine distribution that is not completely understood or known yet at this point, but given the fact that there are several of them out there, we believe we should see a work from office situation return and a little bit of more normal operating situations with regard to both your home life and your office life and the segregation of those two, not necessarily the mixture of them as they stand today. We also have the issues of unlocking the mysteries of a new president. We're not sure what that will bring in the form of stimulus, in the form of taxation, in the form of trades and global negotiations with others in the world. All of that we do think, though, allows for the potential for inflation to start increasing, not to the point where it becomes hugely problematic from a Federal Reserve standpoint in 2021, but we do believe that it will lead to a steepening of the yield curve as we begin to see some inflation creep back into the normal things that we do on a daily basis, household purchases at the grocery store, dining out, going on vacation, those sorts of things. We do think that there will be some inflation, and as that occurs, a steepening of the yield curve.
Disclosure: Views are as of 12-15-20 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Yield Curve: Graph showing the comparative yields of securities in a particular class according to maturity. Securities on the long end of the yield curve have longer maturities. Federated Investment Management Company 20-30602 (12/20)